The Alberta government has started talks with the private sector about Canadian oil producers taking over crude-by-rail contracts signed by the previous government, Alberta Premier Jason Kenney said on Tuesday.
The talks follow newly elected Kenney’s campaign promise to scrap the former New Democratic Party government’s $3.7 billion crude-by-rail deals, which he has slammed as poor value for taxpayers.
“There are confidential conversations going on between our government and private sector actors. Our strong preference is that the private sector take over those contracts,” Kenney told reporters in Calgary.
Although talks are underway, the crude-by-rail programme will not start up in July as originally planned by the NDP, said a government source with knowledge of the situation, who is not authorised to speak to the media.
Alberta is Canada’s main crude-producing province and home to the country’s vast oil sands but a lack of pipeline capacity leaves oil bottlenecked in Alberta, adding to the price discount on Canadian barrels versus U.S. oil.
That discount hit record levels in late 2018, prompting the NDP government to curtail oil production. Earlier this year the NDP also inked deals to lease 4,400 rail cars that would transport Alberta crude to market, before being ousted in an April election.
The two largest contracts signed were with Canadian National Railway Co and Canadian Pacific Railway Ltd to move the rail cars. The programme was meant to start transporting 20,000 barrels per day next month, ramping up to 120,000 bpd by mid-2020.
“Those contracts were signed in the last days of the NDP government and pay above the market rate,” the source said.
“The sticking point is whether the railways are willing to come to the table to offer commercial terms that would be attractive to producers to ship their oil, and whether some or most of the oil producers can agree to conditions under which they can contract directly with the railways,” the source said.
Alberta is so far encouraged by suggestions that CN and CP would be willing to discuss the contracts, he added. The chief executives of Husky Energy Inc and Cenovus Energy Inc previously talked about the possibility of the private sector taking over the government crude-by-rail deals. Neither company immediately responded to requests for comment.
(Reporting by Nia Williams Editing by Denny Thomas and Marguerita Choy)