On election night last week, I was stationed in Calgary Alberta, watching the results unfold in Mountain Time, and wondering what was going on in the country I’ve adopted as home. You see, I’m a native Calgarian, and was visiting my home town to share insights with a group of supply chain executives at the University of Calgary this past week. At least half of these executives were from the oil and gas industry, which is suffering severely during a period of low priced oil. The unemployment rate has peaked at 10% in Calgary, with thousands of oil industry workers and executives laid off, and many have been looking for work for the last two years. Building vacancies in downtown Calgary are at 30%+, yet more buildings and homes continue to go up.
I went in to meet the group on Wednesday the day after the election. A surprising outcome was that Trump announced that very day that he would support the Keystone XL pipeline, which was welcome news for many Calgarians. To understand why, it helped to also share the insights provided that day by Peter Wallis from the Van Horne Institute. The Van Horne Institute is recognized both within Canada and internationally as one of North America’s leading research institutes focused on transportation, supply chain and logistics, regulatory affairs and information and communications, as measured through its contributions to the strategic decision-making and implementation processes in the public and private sectors. policy and transportation.
The Van Horne Institute is led by Peter Wallis, who helped found the VHI. He discussed the need for consideration of public policy in any strategic logistics decision. To facilitate research and legislation in this area, the VHI has three Centers that focus on the Center for Transportation, Center for Regulation Information and Center for Communication. All three of these are related to supply chain strategic planning. One example of this is the case of autonomous vehicles and the unlocking of the resources for thinking about how to adopt these to our society. VHI research is beginning to test autonomous trucks in Nevada, and has taken the bold step of seeking to license autonomous vehicles.
Since its inception in 1981, the VHI has grown from a handful of members to 60-70 corporate members. This program is a manifestation of the opportunity to understand supply chain, logistics, and transportation. Canada is a trading nation, and so getting products to market is critical to the national economy.
One of the major research initiatives is also focused on how Canada can get its oil to export markets. Two areas the group has focused on are particularly bold and audacious. In seeking to ship oil and gas offshore, Alberta has sought to build pipelines in three directions: Energy East through Quebec, south through the Keystone XL pipeline, and west through the Northern Gateway. After Tuesday night’s results, there is renewed hope that Trump will revive the Keystone XL pipeline, despite the protests in North Dakota. The Energy East pipeline seems to be a challenge, particularly as individuals such as the Mayor of Montreal insisted that “I don’t want it in my backyard”. The Northern Gateway going west through BC has had many challenges. This leaves one option open: Go North.
The Alberta government asked the Van Horne Institute to examine the case for building a railway from the Oil Sands fields of Fort McMurray to the Delta junction in Alaska. Their economic model envisioned using 196 cars with distributed locomotive power, with six to nine trains of that nature running 24-7. The goal would be to create a logistics channel capable of exporting 1M to 1.5 M barrels a day of bitumen. The bitumen would be heated in tanks in McMurray and unloaded in heated tanks at Delta Junction, where the Alaska Pipeline connects with the Alaska Railway system,which goes to the port of Valdez. The proposition of the study would be to have the bitumen mixed with product coming off the north slope, and offshored to customers by ships in Valdez.
The study was conducted with the University of Alaska and involved the potentially affected Indian communities, with engagement to understand and communicate what this would mean to them financially and socially. The project would involve a purpose-built railway going from Fort McMurray to Delta Junction, spanning almost 3000 kilometers. The team was not sure that the Alaska Pipeline would be interested in taking Canadian oil into their system. The projected cost was in the range of $CDN 24-30B.
The study is online at the Van Horne Institute. The study has been picked up by the Alberta to Alaska pipeline, and they have First Nations money to look at a feasibility study, for construction of the service. Their estimates are in the range of $CDN 14-20B.
Other issues the VHI is examining include congestion management, and the proposal for highway tolls and privatization of highways in Canada to generate government revenue. The other issue is the emergence of infrastructure banks, which are done all over the world. Infrastructure banks are developed to create pools of capital, to generate returns on investments in logistics infrastructure.
These are all topics that will surely shape the discussions between the US and Canada in the months ahead. We all remain on the edge of our seat this week as we wait on how Donald Trump’s forms his cabinets. But one thing is for sure: big changes are ahead for the Canadian oil and gas industry.