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Peter Watts: How will Alberta move its oil?

Global News logo Global News 2018-12-01 Peter Watts
a group of people standing in front of a train: Investigators look over tanker cars pulled from the Lac-Megantic in Nantes, Que., on July 11, 2013.© THE CANADIAN PRESS/Ryan Remiorz Investigators look over tanker cars pulled from the Lac-Megantic in Nantes, Que., on July 11, 2013.

Premier Rachel Notley will be speaking to Albertans on Sunday evening, and it's expected she will announce production cuts in Alberta's oil patch. The idea is to pull back on production in the hope that the price of crude oil will rise and the discrepancy between Western Canada Select and West Texas Intermediate will moderate.

In an op-ed piece on Saturday, the premier said the resource belongs to Albertans and that it is outrageous that this province should, in effect, be giving the resource away.

READ MORE: Alberta Premier Rachel Notley proposes Ottawa get into crude-by-rail business

Earlier in the week, she called for federal assistance in acquiring up to 7,000 tanker cars and enough engines to pull unit trains of 120 cars apiece. Notley wants to move up to 120,000 barrels of crude per day to tidewater. The idea is to supplement the 260,000 barrels of oil per day currently being moved by rail along with the hundreds of thousands of barrels of oil that are currently making their way to various ports via pipelines.

The idea is good, but the execution presents some challenges. Rolling stock would have to be acquired, either from rental companies or from factories.

The premier herself says the earliest this idea can be put into effect is a year from now.

Mike Walls, a senior crude oil analyst at Genscape in Boulder, Colo., has been following the story.

"A tanker car costs between US$120,000 and $150,000," he tells me. "The higher price is for those cars, which are equipped with energy coils, which allow the crude oil to be warmed up during shipment. That would mean less diluent would be needed to keep the product in a fluid state."

READ MORE: Alberta energy firms split on call for government-imposed oil production cuts

"Railways are not going to move the cars on a month-to-month basis," Walls adds. "They are going to want multi-year commitments from shippers, and that, obviously, comes at a cost. If and when pipelines are built, what happens to the tanker cars if shippers choose to move oil by pipeline, which is cheaper?"

The real challenge here is that what is being proposed represents a mid- to long-term solution with little that can be done about the problem in the near term. Leaving the crude oil in the ground is going to impact hundreds, if not thousands, of jobs in the energy sector. But giving the oil away doesn't make much sense, either.

READ MORE: Paramount Resources CEO backs calls for production cuts to support oil prices

It will be interesting to hear what the premier has to say on Sunday evening. It will be even more interesting to watch and see what happens next.

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