Alberta’s UCP government has initiated the process to offload to industry the crude by rail contracts put in place by former Premier Rachel Notley.
The announcement comes as crude by rail is back on the upswing, with the latest data from the National Energy Board showing traffic increased by 40 percent in April compared to March.
In February, Notley announced that the province would invest $3.7 billion to move oil by rail, leasing 4,400 rail cars, with volumes starting to move in July. The plan was to have the province ship up to 120,000 bbls/d by 2020.
At the time, crude by rail traffic had dropped off as a tighter light/heavy oil differential caused in the early days of Alberta’s oil curtailment shut down rail’s economics.
The curtailment has since been eased, including a new reduction for July production that was announced on Thursday.
On the campaign trail, now-Premier Jason Kenney vowed to cancel Notley’s rail contracts, calling it a reckless “corporate welfare” situation.
His government has now initiated that process, energy minister Sonya Savage announced in a statement on Thursday.
“We have said from the beginning that shipping crude by rail is something that the private sector is in the best position to be doing itself,” she said.
“Our government is taking the next step in shifting the former government’s crude-by-rail program to the private sector. The Alberta Petroleum Marketing Commission has engaged CIBC Capital Markets to help oversee the divestment of the crude-by-rail program and its transition to the private sector.”
This process involves “highly confidential commercial negotiations,” she said.
Analysts with Peter & Co. estimate that until a new pipeline is completed, the Western Canada Sedimentary Basin will require at least 400,000 bbls/d of rail and/or curtailments to balance the market.
“Recent rail data has been encouraging with the most recent public data showing total WCSB rail volumes i the approximately 225,000 bbl/d range (our estimate based on March data), and the most recent data suggest a quicker ramp up towards 300,000 bbls/d,” analysts said last week, adding that there is enough industry capacity to take rail above 400,000 bbls/d.
Incremental rail should be incentivized with expectations for near-term WCS-WTI differentials around ~US$20/bbl, they added.
Savage said the province’s divestment of the rail contracts is expected to be completed this fall.