All aboard the Oilsands Express!

That’s the call from oilpatch veteran and now “railroad engineer” Jim Gray, echoed by Premier Ralph Klein’s former right-hand man and now “conductor” Rod Love.

Both are driving like twinned diesel locomotives to build a $2.6-billion railway – including $300 million to be paid by taxpayers – from Nisku, just south of Edmonton, to the oilsands near Fort McMurray.

The pair, on behalf of proponent North East Alberta Transportation Initiative (NEATCor), released a “business verification” report (which makes it sound like the business case had already been decided) on the scheme last week.

The $2.5-million report, half of it paid for by taxpayers, says the heavy-gauge freight railway would lower the costs of shipping heavy machinery, equipment and workers to the oilsands region.

The new line, the report argues, would also make area roads safer by getting behemoth pieces of equipment going to oilsands plants off Highway 63, which runs into and right through Fort McMurray.

But how much do taxpayers really know about this Little Engine that Would if it Could?

Unfortunately, the two volumes of the six-volume report made public last week raised more questions than they answered. The other four volumes are being kept under wraps for now because NEATCor says they contain confidential, competitive information.

But even before the first spike is hammered, this rail line’s estimated cost has jumped 30 per cent from a previous $1.8 billion estimate.

Economic Development Minister Mark Norris expects that cabinet will make a decision on spending taxpayers’ $300-million share of the project by next month – which raises another question.

Why is a decision being fast-tracked without considering other, competing proposals?

How much would it cost, for example, to build two new lanes of asphalt running beside Highway 63 from Edmonton to Fort McMurray that are dedicated just to oilsands industrial traffic – and forget about a new rail line?

A separate study by the Alberta Chamber of Resources released earlier this year said oilsands developers could save up to $459 million per year in transportation costs if they use the proposed railway.

The study predicts that even if only 15 per cent of oilsands traffic switches to rail, the industry will save $9.11 to $10.49 per tonne of materials shipped, or up to 24 cents per barrel of oilsands production.

So if this railway will be such a boon to the oilsands industry, then why should Alberta taxpayers foot 12 per cent of the bill? Why isn’t industry paying the whole shot?

Moreover, why should taxpayers bear all the risk if the new rail line turns out to be an economic “Murder on the Oilsands Express” instead of a transportation lifesaver?

NEATCor’s report proposes that the province cut royalties for oilsands operators if constructing the railway runs over budget, or if companies don’t shift their transportation fast enough from road to rail, or if the amount of freight on the rail line falls short of predictions.

This proposed royalty break comes at an awkward time for the government.

Oilsands giant Suncor in July hired Peter Elzinga, co-chair of the Tories’ re-election campaign and Klein’s former chief of staff, to help the company convince the government that Suncor deserves a $200-million royalty break on its new Firebag operation near Fort McMurray.

No one is suggesting there’s any link between the oilsands railway and Elzinga lobbying to get Suncor’s royalties cut. But it is, as they say in politics, bad optics.

There may well be “significant merit,” as Gray and Love maintain, in building a $2.6-billion choo-choo to Fort McMurray.

But a proper feasibility study should look at all the alternatives. And before taxpayers get railroaded into paying for the ride, they deserve some detailed answers to a lot of questions.


Carbon Sense

A new study from an aging EnCana Corp. oilfield in southeastern Saskatchewan should spur Canada to get its act together in cutting greenhouse gas emissions.

The four-year, $40-million study, released last week in Vancouver at an international Greenhouse Gas Control Technologies Conference, shows that carbon dioxide injected into an oil-bearing formation will remain underground – likely for thousands of years.

Not only that, the greenhouse gas has been successfully used in EnCana’s 50-year-old oilfield near Weyburn to recover more oil from the reservoir.

The combination enhanced oil recovery-carbon sequestration project has stored an estimated five million tonnes of CO2 underground since being launched four years ago. That’s like taking about one million cars off the road for a year.

Malcolm Wilson, international energy specialist with the Regina-based Petroleum Technology Research Centre, said the findings “are good news for addressing climate change, because it proves that you can safely store 5,000 tonnes of CO2 per day in the ground rather than venting the greenhouse gas into the atmosphere.”

Federal Natural Resources Minister John Efford, who’s pleased with the study’s findings, says the leading-edge technology “is key to the Government of Canada’s approach to addressing climate change.”

If that’s so, then Ottawa should ante up more money than the relatively paltry $15 million over five years that it has offered so far to encourage the development of carbon-storage technology.

Canada ratified the Kyoto accord nearly two years ago and committed to reducing greenhouse gases. Yet the country isn’t doing as good a job of cutting emissions as the U.S., which rejected the treaty.

Emissions here have risen 20 per cent since 1990 (the baseline year for cutting emissions under Kyoto), compared with 14 per cent in the U.S.

Ottawa and the Alberta government both see carbon storage as a key technology to reducing gases, whether or not Kyoto ever takes effect as an international treaty.

Each government has contributed $15 million over five years that has so far kick-started four pilot projects in Alberta on enhanced oil recovery and carbon storage.

But that’s pocket change compared with the province’s expected $8 billion-plus in oil and gas revenues this year, and Ottawa’s forecast surplus of at least $5 billion.

Now that there’s scientific evidence that carbon storage works, both governments should step up to the plate with a lot more money.


Ecuador Ups and Downs

That sound you hear is EnCana Corp. CEO Gwyn Morgan closing the door on Ecuador.

A week ago, this column speculated that Morgan may have decided to end EnCana’s involvement in the South American country.

The company is embroiled in a dispute with the Ecuadorean government over a $120-million US tax refund, and its stake in an oil pipeline pushed through the Amazonian rainforest is drawing flak from international human rights groups.

Well, last week Morgan confirmed at an energy conference in New York that operating in Ecuador is “constantly a roller-coaster.”

Compared with EnCana’s other holdings in Canada, the U.S. and the North Sea, the political risks in South America must certainly seem like an endless carnival ride.

Morgan wouldn’t confirm reports that EnCana has put its assets in Ecuador up for sale for $1.5 billion US. But he acknowledged that most of the company’s focus going forward will be in North America.

Jumping on the oil exploration roller-coaster ride in a developing country does have its upside as well as its risks.

But when the ride never stops, it’s wise to get off.