Alberta Premier Rachel Notley grabbed headlines recently with her pledge to buy additional railway locomotives and tank cars to help move some of Alberta’s excess crude oil to market. Brian Zinchuk says those numbers don’t make sense, given the amount of money the province is to pay:
On Nov. 28, Alberta Premier Rachel Notley announced her province is going to be acquiring unit trains to get her province’s landlocked oil moving. Not only has she committed money to Trans Mountain Expansion, but now rail, too. This premier is serious.
However, there’s a big problem with her numbers. She spoke of $350 million to purchase up to 7,000 rail cars and 80 locomotives. That $350 million doesn’t come even close. It might be enough to lease those units for a few years. Her stated intention was this was a short-term solution, and the life expectancy of a locomotive and tanker cars is easily into three or four decades.
However, she said, “Alberta will buy rail cars ourselves in our fight to get top dollar for the resources that belong to every Albertan.”
I never saw “lease” mentioned once.
Notley spoke of 120,000 barrels per day (bpd) of capacity. Her initial statements weren’t very clear, as someone with little knowledge of the business might think she just meant two sets of 100 or 120 car trains. That wasn’t at all what she meant.
She meant enough trains to keep 120,000 barrels per day in motion, each and every day. That’s a lot of rail cars, and a lot of locomotives.
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There’s a problem with her numbers, however. The current standard locomotives used by Canadian railways cost US$3 million each as of December 2017, when CN bought 200 locomotives for US$600 million. That’s $3.859 million Canadian, each, at the exchange rate at that time. Notley spoke of 80 locomotives – that’s $308.7 million. That only leaves $41.3 million for 7,000 rail cars, or $5,897 each. That’s obviously way too low. So either there’s some leasing considerations involved here, perhaps on the locomotives, or the $350 million is way too low. Remember they were asking the feds for half? Even if the feds coughed up an additional $350 million, that still leaves only $55,900 per car.
My math shows, on the low end, a price tag of $945 million for new rail cars alone. Coupled with ~$309 million for locomotives, and you come in at $1.254 billion. At the high end, it would be $1.484 billion for cars, totalling $1.793 billion including locomotives. Either way, it’s a heck of a lot more than the $350 million announced. Unless she’s leasing, Notley’s $350 million is only one-third to one-fifth of the money required to buy all these new trains, and no consideration has been given to staffing or operational costs.
H/T to Small Dead Animals for the link.
