Saturday July 26, 2014

Riding the Rails

Plan sees oil transported by train across the Peace
James Waterman Photo

The moose of northeast British Columbia better watch their step around the train tracks. Rail traffic could increase significantly if plans to build a rail line for transporting oil sands bitumen from Alberta to Alaska goes forward.

Alberta oil sands bitumen could be flowing through the Peace Region by the end of the decade, but the mode of transportation might not be pipeline and its destination might not be the British Columbia coast.

Calling it a "nation changing" project, a consortium known as Generating for Seven Generations – or G7G – is proposing to construct a 2,400 kilometre rail line capable of moving five million barrels per day of Alberta crude from Fort McMurray, Alberta to Delta Junction, Alaska, where it will hitch a ride on the Trans-Alaska Pipeline to the port of Valdez, Alaska on its way to oil-hungry Asian markets.

The railway – known as Unifying Nations Railway Company or UNRailCo – would turn northwest near Peace River, Alberta and pass through the communities of Fort Nelson, B.C. and Watson Lake, Yukon as it heads toward Alaska.

"Studies have already demonstrated that a rail link to Alaska is a viable alternative to the oil pipelines currently being planned through British Columbia," said G7G CEO Matt Vickers when the plan was officially announced on Nov. 14, 2012.

Vickers was referring to Enbridge's proposed Northern Gateway pipeline from Bruderheim, Alberta to Kitimat, B.C. and Kinder Morgan's plan to twin their Trans Mountain pipeline to Burnaby, B.C.

Both of those projects have seen considerable opposition from First Nations and environmental groups such as the Dogwood Initiative.

"The greatest strength of our Alberta-Alaska railway concept is the support it has received from First Nations along the route," said Vickers.

Now G7G is trying to gain the support of the Alberta government as well.

The group is set to launch a feasibility study at a cost of approximately $40 million with the hope that the Alberta government will pay about a quarter of that bill.

Vickers has said that G7G will not be discussing the project with the media as long as that decision is still up in the air.

A Jan. 3 press release indicates that G7G is scheduled to meet with Alberta Energy in January to discuss the matter, but a statement from ministry spokesperson Mike Deising said that "there will not be a decision in January and there is no time on if or when a decision will be made."

There is definitely interest in shipping oil by rail.

"The focus on rail is telling as far as market demand and shippers looking for creative ways to move product to market," said Canadian Association of Petroleum Producers (CAPP) spokesperson Travis Davies, adding that the industry is also going to need new pipeline capacity to the west coast, eastern Canada and the Gulf Coast in the United States.

"As pipeline capacity grows tight, creative options such as rail become more attractive and economic," he continued. "Rail will grow, but remain a small percentage of crude transport."

"This plan goes back a long, long ways," Bill Streeper said of the oil-by-rail idea.

"And it kind of died a natural death."

Streeper is the mayor of the Northern Rockies Regional Municipality, a jurisdiction that includes the community of Fort Nelson and the shale gas play known as the Horn River Basin, where natural gas producers are facing similar issues as those facing operators in the Alberta oil sands – access to markets beyond North America is minimal and the North American price for the commodity is too low.

"The tar sands, of course, is being forced … to find a route to the Pacific," said Streeper, suggesting that Canada is guilty of an economic sin by relying too heavily on one customer when it comes to selling its natural resources.

"Not everybody investing in the stock market buys one stock," he added.

Jean-Francois Arsenault, an economist with transportation sector consulting firm CPCS Transcom, noted that rail can be an attractive alternative to pipelines from an economic development standpoint because railroads offer the ability to ship other products as well.

However, Arsenault also remarked that transporting oil by pipeline is less expensive than rail because of the ongoing costs of operation and maintenance associated with railroads.

Transporting oil by rail might make sense at the present time considering that there is insufficient pipeline capacity for the large volumes of oil being produced in North America, not to mention that many small markets don't have pipeline access, but Arsenault has doubts about the feasibility of this Alberta-to-Alaska project.

"You give a pen and a paper to an engineer and he will make it work," he said.

"I have a hard time seeing how it will make economic sense."

G7G is suggesting the railway could move five million barrels of oil per day and also transport other products such as grain, lumber and potash, as well as the products of mining operations in B.C. and Yukon.

Arsenault said that moving that volume of oil alone would require 33 long trains every 45 minutes.

"The scale of the oil movements they want to put on that railway means it would have to be a purpose-built railway. As soon as you start putting other products on it, its capacity is reduced," he added.

"You can't say you're going to build a purpose-built railway and then start putting a bunch of other products on it without affecting its capacity."

Additionally, the Alberta Energy website indicates that oil sands production is only expected to reach 3.5 million barrels per day by 2020, which is 1.5 million barrels per day less than the proposed capacity of G7G's railway.

The proposed capacity of Northern Gateway and Trans Mountain are both less than one million barrels of oil per day.

Arsenault doesn't understand the logic behind the rail plan.

"If you're going to go through all the trouble of securing a right-of-way, why are you going to design your pipeline to handle 600 to 800 thousand barrels if the demand is three million or five million?" he said.

"Part of the problem with the railway is, if you're going to build it, you need to use it to make it financially viable."

Streeper has trouble with the numbers, too.

"The figures don't add up," he said.

Part of the difficulty Streeper has with the plan stems from the volume of train traffic, which he believes would require separate northbound and southbound tracks, an unprecedented idea to the best of his knowledge.

"You've pretty well got one train sitting all the time on the siding while the other one goes by."

Streeper has concerns about the cost as well. It has been reported that a single-track line would cost $8.4 billion to construct and a double-track line would cost $10.4 billion.

Northern Gateway is only expected to cost $5.5 billion, but would also move just a fraction of the proposed volumes to be transported by the UNRailCo line at 525,000 barrels per day.

"The cost is just horrendous," said Streeper, even suggesting that the proponents might not yet appreciate what the full cost could be.

"You have a vast amount of mountain ranges," he continued, discussing his numerous trips between Fort Nelson and destinations in both Yukon and Alaska during which he has seen the rough terrain the new railway would have to cross.

"And to get trains up through that is going to be horrendous."

Snowfall in western Yukon and Alaska is another problem.

"The removal of snow off that line is going to be horrendous," said Streeper.

"Do I think it's going to materialize? I would be surprised. We are looking at some massive funding."

The project overview on G7G's website suggests that the five million barrels of oil per day number might simply be to demonstrate the growth potential of the rail option compared to the limited capacity of a pipeline.

The overview also notes benefits to smaller producers and shippers that likely wouldn't secure contracts with pipeline operators, but could utilize a railroad on an as-needed basis.

Richard Durocher, the mayor of Watson Lake, is focusing on the potential economic benefits that the railway could bring as far as moving products other than oil, particularly lead and zinc from a Selwyn Resources mining project on the border of Yukon and the Northwest Territories, just north of Watson Lake.

"It's probably one of the largest lead-zinc deposits every found," Durocher said of the mine, adding that a lack of transportation infrastructure has meant delays for that project.

"Southeast Yukon is wealthy with resource deposits," he continued. "And one of the big key reasons that a lot of it hasn't been developed is because of the transportation costs."

Durocher believes that a new rail line through Watson Lake would be a benefit for that project and an economic benefit for his community, even if the main objective of G7G is shipping oil.

However, he hasn't yet had any conversations with G7G about the idea.

"But I would love to," he said.

"I'd love to invite them here to talk to us."

Environmentally, UNRailCo is being touted as a better option than the proposed heavy oil pipelines because much of the opposition to Northern Gateway often involves concerns about oil tankers off the coast of Kitimat, a port that doesn't have the same history of tanker traffic as Valdez.

"Valdez has seen oil tanker traffic since the 1970s," said Chief Ronald Kreutzer of Fort McMurray First Nation.

The volume of traffic has been decreasing along with the volume of oil from Alaska's North Slope.

"This proposal would simply mean replacing the declining supply of Alaska crude with a new supply of Alberta crude," added Kreutzer.

"We believe this approach has a greater chance of obtaining social license from local communities than other competing scenarios."

Streeper doesn't think a railway is safer than a pipeline.

"Way more dangerous. There's no doubt about it," he said.

"Pipelines are the safest transportation mode there is."

Streeper spent 35 years in the fuel transportation business, a period during which he saw numerous incidents of train cars leaving a railway siding with hoses still attached to the bottom because the fuel was still flowing.

"Fuel spewing out the bottom because they pulled the hose apart," he said.

According to Streeper, that is just an indication of the potential for human error causing accidents when people have to physically handle the product as much as they would with a railway compared to a pipeline.

Streeper believes that a pipeline is the best way to move Alberta oil to the coast for export to Asia.

However, he lacks confidence in Enbridge and their Northern Gateway plan.

"Enbridge did it wrong," said Streeper, suggesting that Enbridge made mistakes by failing to discuss specific concerns with opponents of Northern Gateway and actually reducing confidence in the project by adding millions of dollars worth of safety measures in response to a recent oil spill in the United States.

"Saying, 'We did cut our safety short by $500 million. Now we're going to put it in.' And you say, 'Well, what else did you cut short?' This is where they've done wrong," Streeper continued.

"In their consultation [with] the public, they should be coming forward and saying, 'What don't you like about it? Don't say you don't like the pipeline. What don't you like? Let's see if we can sit down and negotiate and engineer everything that you people don't like.' And there's one main thing people don't like. And that's a spill."

Streeper isn't particularly enthusiastic about Kinder Morgan's Trans Mountain expansion either.

"I would prefer the northern run a little bit more."

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