Finally, A Railway Oil Can Ride On

A group of Canadian businessmen has obtained the blessing of Alaskan tribes and Canadian First Nations to build a railroad through their lands that could carry up to five million barrels per day from the oil sands to the super tanker port in Valdez, Alaska.

This is truly a nation-building project that must be seriously evaluated by all governments and the oil industry. Preliminary feelers have been placed and it's clear that the concept is the most viable and pragmatic solution for Canada's logistical problems.

The proposed 2,400-kilometre railway would link Fort McMurray, Alta., with the Alaska oil pipeline system then on to the Valdez for export.

The proposal, conceived a few years ago in studies commissioned by Alaska and Yukon, would liberate the stranded oil sands and bypass opposition to new pipelines in both countries.

Other solutions have been proposed, but this is the best for many reasons: The group promoting this realizes that any major infrastructure project is a non-starter without a social licence. So they began by seeking and obtaining local support.

"The greatest strength of our Alberta-Alaska railway concept is the support it has received from First Nations along the route and from the Assembly of First Nations across Canada," said consortium CEO Matt Vickers. He's a former banker from northeast British Columbia with an engineering background and revealed the project in detail to me. "And the railway was first proposed by Alaska and Yukon, which still support it."

His group calls itself G7G, Generating for Seven Generations, based on a First Nations' belief that any major decision today must take into account how it will affect people seven generations in future.

"We found these studies by Alaska and Yukon done in 2005 and 2007, we knew that Valdez faced declines from the North Slope oil fields and we knew that the B.C. pipelines and Kitimat port were opposed. This railway was an obvious solution," said Vickers. "To ensure this could be a real project, we began to knock on the doors of all the First Nations and tribes in Alaska along the route. I finished doing that in July, getting letters of support from all. Plus, in July, I got support from the National Assembly of First Nations in the form of a resolution representing all 603 chiefs in the Assembly."

The group is seeking financial support for a feasibility study from industry, investors, B.C., Alberta and Ottawa. Reception has been somewhat cool, not surprising given the existence of powerful vested interests that support current pipeline proposals, such as China, banks and certain oil patch players.

But this railway trumps alternatives and represents the most important, strategic infrastructure project in recent Canadian history with the added benefit that it bypasses pipeline-and-port politics.

In fact, this deal deserves to be fast-tracked and here's why:

The railway with a single track would cost $8.4-billion and carry 1.5 million barrels per day. A twin-tracked railway would cost $10.4-billion and transport up to five million barrels daily. By contrast, Northern Gateway pipeline to Kitimat on the B.C. coast would cost $5.5-billion and ship up to 525,000 barrels per day; and the Kinder Morgan proposal to Vancouver would cost $4.1-billion and add 300,000 barrels a day to its existing pipeline.

G7G estimates that oil producers would have to pay a per-barrel cost by rail of $6 and $8. By contrast, Northern Gateway would charge $5 a barrel.

Shipping oil to Asia is cheaper, and would be two to four days shorter, from Valdez. "People are surprised at that, but if you look at the map, the mileage is dramatically less across the Pacific Ocean from Valdez compared to Kitimat," Mr. Vickers said. Once in Valdez, the cost to ship to Asia would be $2 to $3 per barrel; to the U.S. Gulf coast via the Panama Canal $3 to $4 per barrel; to the U.S. west coast $1 to $2 a barrel; and to Europe via the Canal $4 to $6 a barrel. This would differ little from shipments out of Kitimat, except for Asia. If the railway was double-tracked Canadian potash, grains, lumber, metals, minerals and other exports could be taken to port for shipment around the world.

The rail line could return from Valdez bringing equipment, supplies and water from the coast to the oil patch, at lower costs compared with current modes and distances.

This deal cannot be ignored because it's the first time a comprehensive agreement with aboriginals has been signed involving a proposed project.

An easement exists (to build a highway from Fort McMurray to Peace River) covering one-quarter of the route. The Alaskans are already investing in infrastructure for this project in anticipation of its approval.

The railway could be built in stages, a single then double track, in conjunction with proposed pipelines if they are approved.

Canadian investors, the State of Alaska, Canadian governments, the oil industry and aboriginal groups could own this dedicated railway, thus allowing the oil to be sold to the highest bidder. Other proposals will make oil producers price captives if there is a single foreign buyer.

This railway is the only alternative if the B.C. pipeline proposals or Keystone XL fails. In fact, it's a superior alternative.

Despite benefits, Canada has become notorious for political sclerosis. Worse, its governments, eager to build hockey arenas or give grants to win votes, are stingy when it comes to visionary ideas. Only $60-million is needed to complete final engineering and environmental studies in order to seek necessary approvals; divided among a few players, that would amount to very little impact on budgets.

The G7G group has reached out only recently, since it signed on the First Nations, but already governments are dragging their feet or cool to the notion. But once a process is launched, Mr. Vickers said the railway could be operating as soon as 2018.

This is about much more than a rail line. This represents the single most important, and most pragmatic way, to underpin Canadian living standards. It's an idea that deserves immediate and serious consideration.

* This article previously appeared in the Financial Post