Oil-by-rail-to-Alaska bid could nearly bypass B.C.

If new pipelines are not built, oil by rail will increase; two companies think Alberta to Alaska is the route to take

By
Business in Vancouver
February 14, 2018






matt vickers
First Nation business consultant Matt Vickers is one of the partners in G7G, which proposes moving Alberta oil to Valdez, Alaska, by rail. | Chung Chow

 

In 2013, when oil was selling for US$100 per barrel and oil pipeline proposals like Northern Gateway and Trans Mountain were getting a rough ride from regulators, environmentalists and First Nations, Alberta Energy provided $1.8 million to study an oil-by-rail proposal that seemed ludicrously ambitious.

Five years later, two such rail plans are on the table but neither is generating much traction in Alaska.

The plan appears brilliant: rather than try to build a pipeline to tidewater on the “pristine” west coast of B.C. – where pipeline opposition is rampant –  what if a new railroad could be built from northern Alberta to Delta Junction in Alaska, where undiluted bitumen could then be unloaded, diluted and moved on the much underutilized Trans-Alaska Pipeline System (TAPS) to Valdez?

Not just any railroad either, but a double-tracked electrified railroad that could move one  million barrels of oil per day (bpd), as well as iron ore and other minerals from potential new mines in northern B.C. and the Yukon.

It would solve Alberta’s problem of getting landlocked oil to foreign markets, and it would solve Alaska’s problem, which is an underutilized pipeline – the Trans Alaska Pipeline System And it would solve the Yukon territory’s problem of mineral deposits that can’t be developed into mines for a lack of transportation infrastructure.

But given the opposition that pipelines transiting B.C. have received from First Nations, how could such a project get the consent of First Nations in Alberta, B.C., the Yukon and Alaska for  a 2,440-kilometre double-tracked railway carrying bitumen from Alberta’s oilsands?

Matt Vickers, a Tsimshian-Heiltsuk business consultant from Vancouver and partner in G7G (Generating for Seven Generations), says the Alberta To Alaska Railway project has letters of support from every Indigenous group along the proposed railway corridor. 

The one band that doesn’t support G7G, Fort Nelson First Nation, is backing a competing oil-by-rail proposal.

G7G is recommending a route change that would largely bypass B.C., although it would dip into the tip of northern B.C. to Watson Lake.

One of the selling points, for First Nations, is that they wouldn’t be just granting permission for the railway to be built, but would be equity partners in the project.

“The cost of living for all those people in the north is going to change overnight,” Vickers said.

Vickers and his partners with G7G worked with the engineering firm Aecom on an initial proposal and pitched it to Alberta Energy, which allocated $1.8 million for a pre-feasibility study.

That study, concluded by the Van Horne Institute in 2015, estimated a conventional double-tracked railroad with a one-million bpd capacity would have a capital cost of $27 billion. 

To put that in perspective, the Energy East pipeline, which also would have moved one million bpd, was estimated to cost $15 billion, but would have moved only oil, not other commodities.

Project financing

But who would finance such a grandiose plan? 

“We’re fairly close to securing the financing now,” Vickers said.

He would not say who the major financing partners would be, but confirmed some of the financing might come from China.

“I can’t be disclosing any of that right now,” Vickers said. “We went to China in July, August of last year and talked to a number of the big state-owned enterprises and came back with a memorandum of understanding with respect to doing joint ventures with the First Nations to do the rail project. 

“And there’s a number of big Canadian pension funds that we’ve been talking with.”

The Trans Mountain pipeline expansion is approved – though still facing a rough political ride in B.C. – and the Keystone XL pipeline is back in the regulatory approval process, although hurdles remain.

Even if those pipelines get built, however, Vickers said there is still enough potential growth in Alberta’s oilsands to justify a new oil-by-rail project to Alaska. As he points out, it’s not just oil prices constraining oilsands expansions, but a lack of pipeline capacity. 

The Canadian Association of Petroleum Producers estimates Alberta oil sands production will grow by 1.2 million bpd by 2030, requiring an additional 1.3 million bpd of pipeline capacity.

“If all the pipelines went ahead, even Enbridge, there’d still be a need for more capacity,” Vickers said. “The oilsands – the small, medium-sized markets producing oil – they can’t get space on pipelines. It’s just the big companies that do, so they still need a method of getting their product to market as well.”

Under G7G’s proposal, bitumen from Alberta’s oilsands would move by rail in undiluted form, which reduces environmental hazards in the event of a spill, since undiluted bitumen quickly solidifies.

At Delta Junction, Alaska, it would be unloaded, diluted with condensate and then moved along the TAPS to Valdez.

The TAPS pipeline has been underutilized for decades. Oil production in Alaska peaked in 1988 at two million bpd. Less than 500,000 bpd now moves through TAPS, so the Alaskan government is keen to see new uses for the pipeline and its terminal at Valdez.

Competing bid 

The chief of the Fort Nelson First Nation says his people are not opposed to oil-by-rail – they’re just not supporting the one being promoted by Generating for Seven Generations.

It turns out that the two disparate groups are promoting a similar proposal, both of them using the same pre-feasibility study conducted by Calgary’s Van Horne Institute

Fort Nelson Chief Harrison Dickie said that his people have signed a letter of intent with a new group called Alberta Alaska Rail Development Corp. (A2A).

But the more detailed plan presented by A2A appears to be, at least in part, based on the $1.8 million feasibility study for which G7G and Aecom secured funding from Alaska Energy.

While the G7G proposal puts the capital cost of its double-tracked 2,440-kilometre oil-by-rail proposal at $27 billion, A2A puts the capital cost at $15 billion, according to a presentation earlier this year to the Fairbanks Economic Development Corp., which also heard from G7G earlier on its proposal.

Jim Dodson, president of the Fairbanks Economic Development Corp., said Alaskans hear a lot of proposals from big project developers. He said neither oil-by-rail project seems to be generating much interest or buzz in Alaska.

“It’s not getting any play in Alaska,” he said of both proposals. “We’re not reading about it in the press. It is not a project that is gathering public support.”


Copyright © 2018 Western Investor

Email to a Friend

Close
Most Popular
Get the WesternInvestor.com Newsletter