U.S. President Donald Trump’s decision to approve a rail link between Canada and Alaska could open up an export route to Asia for Alberta’s struggling oil sands producers.
The presidential permit, announced in a tweet late on Friday, will push forward a $17 billion project to build a rail line between Fort McMurray, in the heart of Alberta’s oilsands, and Delta Junction in Alaska, according to Alaska – Alberta Railway Development Corp., or A2A, the company behind the project.
Canada’s oil industry has struggled for years with a lack of enough pipeline infrastructure to ship its crude, with projects like the Keystone XL stalled for more than a decade.
“Rail has played an essential role for industry in reaching existing markets, particularly given the lack of adequate pipeline capacity,” Ben Brunnen, a vice-president at the Canadian Association of Petroleum Producers, said in an email. “Greater market access shows investors that there is a path to growth.”
The company said in December that it could begin presenting its proposed rail link to potential shippers by early 2021 to seek commitments. An email to A2A on Monday wasn’t immediately returned.
Alberta’s government welcomes the U.S. presidential permit for the project, Sonya Savage, the province’s energy minister, said in a tweet. “We support the development of trade corridors that can unlock new markets.”
The rail link could serve as an alternative way for oil sands producers to sell into the Asian market, allowing the industry to diversify its customer base away from the U.S., which currently buys nearly all of Canada’s oil exports. A planned expansion of the Trans Mountain Pipeline to Vancouver is currently under construction, but the project has faced years of delays and fierce opposition from some residents of British Columbia, who see it as a threat to the environment.
Although the collapse in oil demand because of the COVID-19 pandemic has reduced crude-by-rail shipments, Canadian oil producers have turned to rail in recent years due to a shortage of export pipelines and a series of setbacks and court delays in getting new ones built.
Shipments of Canadian crude by rail to the West Coast of North America for export are rare. In 2018, a company called Canadian Advantage Petroleum shipped a cargo of heavy Western Canadian crude out of Oregon to China.
© 2020 Bloomberg L.P.