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Alberta continues push to offload crude-by-rail contracts
ALBERTA
THE United Conservative Party (UCP) govern- ment of Alberta is taking steps to overturn the energy policies of its predecessor it was critical of prior to taking power. As a result, provincial oil production curtailments will be eased further next month, while e orts continue to sell the government’s crude-by-rail contracts.
e UCP government announced on June 27 that it had engaged CIBC Capital Markets to help oversee the sale of its crude-by-rail pro- gramme to the private sector. e programme was launched by the former New Democratic Party (NDP) government, which was ousted in the provincial election in April. e UCP, led by Jason Kenney, pledged during its election cam- paign to scrap the NDP’s crude-by-rail contracts, claiming they did not represent good value for tax payers. e contracts are worth CAD3.7bn ($2.8bn), and were struck with Canadian Paci c (CP) and Canadian National (CN) railways to ship up to 120,000 barrels per day (bpd) out of Alberta in the absence of new pipeline capac- ity. e NDP government also leased 4,400 rail tankers earlier this year for transporting the province’s crude output to market, before losing the election.
Speaking in the Alberta legislature, Minister of Energy Sonya Savage said the contracts, which the government has not released, included the costs of loading and unloading oil onto trains and its shipping, purchase and sale.
“ e commercial sector would never have signed those contracts,” Savage said. “Nobody signs a contract where you know that each and every barrel of oil that moves through the system is going to be moved at a loss.” Her comments echo Kenney’s criticism of the crude-by-rail deals.
Savage said the negotiations were con dential and could involve breaking up the deals among several buyers. She said the government was hoping to work out the details of any arrange- ment by this autumn. She added that there was already private sector interest, given that compa- nies were already investing in crude-by-rail prior to the government deals being struck as a result of delays to new pipeline projects. Whether a new deal can be struck without a loss for the government remains uncertain, though Savage said Alberta was aiming for this.
Rail cars were supposed to be available from August to begin shipping 20,000 bpd, with vol- umes subsequently set to grow over the follow- ing year.
A Genscape senior oil analyst, Mike Walls, told the Calgary Herald that selling crude-by- rail contracts to the private sector could reduce bureaucracy by allowing producers to work
The government said last week it would raise production limits to 3.74mn bpd in August.
directly with shippers, thus making it easier to send oil out of Alberta.
“I think it’s the right move, in that private industry was already ramping up rail at the end of 2018,” he said.
And the Explorers and Producers Associ- ation of Canada’s (EPAC) president, Tristan Goodman, welcomed any increase in crude-by- rail capacity, regardless of who leads it, saying it was the only way to grow the industry in the short term.
Also on June 27, the UCP government announced that it would ease oil production restrictions in August. is follows the former NDP government’s move to restrict provincial crude output by 8.7% at the start of 2019 in a bid to prop up Western Canadian Select (WCS) prices a er they had fallen to record discounts against WTI.
Indeed, the move worked, narrowing the dis- count from $45 per barrel in November 2018 to $7.35 per barrel in January. e production limit in January was 3.56mn bpd, and has gradually been eased since then. e WCS-WTI di eren- tial was at around $14 per barrel on July 2.
e government said last week it would raise production limits to 3.74mn bpd in August, marking an increase of 25,000 bpd from the July limit.
e new August production limit will a ect 29 of Alberta’s producers, which number over 300 in total.™
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w w w . N E W S B A S E . c o m Week 26 04•July•2019