All aboard the oil train!

Everybody loves a government-funded feasibility study. The people with the idea are happy to see their idea moving closer to, they hope, realization.

Everybody loves a government-funded feasibility study. The people with the idea are happy to see their idea moving closer to, they hope, realization. The media love them because it’s easy news, usually with a cool map or artist’s rendering to spice up the story. Politicians love them because it’s a cheap and non-committal way to be able to say “I’m working on it” without making a big commitment that might alienate other people. And consultants love feasibility studies because they get paid to do them.

Even better are pre-feasibility studies, especially if they wrap up with a recommendation to do another, more detailed feasibility study. Another round of expense claims and self-congratulatory press releases, barkeeper!

Rarely do the consultants frankly say, “Nice idea, but this one won’t fly.” A few times I have seen the Yukon version of this, which is, “the project is economically viable as long as the government pays for it.”

It’s hard to think of something that is not economically viable if the government pays for it.

The only people who don’t like feasibility studies are taxpayers. Instead of getting a pothole filled, they get a PowerPoint presentation.

The latest example is the Alberta to Alaska Railway Pre-Feasibility Study. The idea is to build a railway from Fort McMurray to Alaska, where the crude could be loaded onto tankers for shipment to international markets. The Alberta government picked up the $1.8 million tab for this study. The next step is, you guessed it, a fully-fledged feasibility study. The proponents are looking for $20 million from governments along the route, including $10 million from the Canadian government according to various media reports.

How about this idea: the proponents should pay for their own feasibility study if they think the idea is so great, and the government should build $10 million of actual infrastructure instead. You could probably build our much-ballyhooed backup fibre-optic line for the cost of a feasibility study for a railway that is, let’s face it, a real long shot.

You don’t need to spend $1.8 million to realize this, but the Alberta to Alaska Railway idea has some big hurdles to get over. Capital costs would be around $30 billion. The route passes through environmentally sensitive areas. It would require assessments and permits at federal, state, provincial and territorial levels. It would even require the president of the United States to personally approve it. There are 25 directly affected aboriginal communities, plus 11 “Native Corporations and Traditional Councils” along the way. Oil companies would have to be willing to pay somewhere between $12.46 and $21.41 per barrel. A huge new bridge able to accommodate trains with a million barrels of oil per day would have to be built over the Yukon River somewhere around Fort Selkirk.

Even worse, the premise of the project is what economists call “regulatory arbitrage.” Shipping oil from Fort McMurray to Asia via Watson Lake and Faro on a train is not the first choice of Albertan oil companies. A pipeline straight to Prince Rupert would be shorter and, depending on your math, would probably cost less than $10 billion.

A railway only makes sense since pipelines are so hard to build in Canada these days, and because the federal government has banned oil tankers at Canadian West Coast ports but can’t ban tankers at Alaskan ports. Indeed, Alaskan tankers sail up and down the Canadian coastline every day from Alaska to Bellingham, Washington, just south of Vancouver.

So the $30 billion investment could be rendered a white elephant if future governments change policies on West Coast pipelines and tankers, or Alberta figures out a way to get its oil to tidewater via the Lower 48.

The proponents point out that the train could serve future mines in the Yukon. True enough. But I’m sure it won’t take environmentalists long to realize the railway’s existence would be great news for large deposits in the central Yukon, perhaps even allowing that giant iron ore find in the Peel Watershed to be developed.

It would also create jobs for armies of Yukon consultants. It would be so controversial that every lobbyist and constitutional lawyer in the Yukon would be able to buy a new Suburban and put another deck on the cabin. It would also be great for high-end tourism, since every movie star in Hollywood would visit to publicize the threat to so much red squirrel habitat between Watson Lake and Beaver Creek.

It’s hard to talk about this project without getting pulled into ever more outlandish territory.

Perhaps the biggest benefit to the Yukon would be that, once the railway was built and a million barrels a day were trundling along it, we could block the tracks and demand even more cash. Ukraine does this to Russian pipelines all the time (although this doesn’t always end up going the way Ukraine hoped).

I could be wrong about this railway idea. But I would rather not have my tax money invested in it on my behalf until we find out. Let the proponents raise $20 million for the next round of feasibility studies from investors. If it really is a good idea, they should have an easy time convincing oil companies and First Nation development corporations to put up their own money.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won the Ma Murray award for best columnist in 2015.

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