By Tom Moran -- A year after a $5-million study on a Yukon-Alaska railway was released, the idea has faded into oblivion. Cost is one reason, industry and government indifference is another.
More than 25,000 jobs. Almost $20-billion (U.S.) in net revenue and public benefits. And $170-billion (U.S.) of growth in Canadian and Alaskan GDP.
Those are three of the eye-catching conclusions reached by a team of more than 100 consultants who took over a year to produce “Rails to Resources to Ports,” a $5-million feasibility study of a 2,000-kilometre-plus railroad link between the Alaska Railroad and Canada’s rail system. The link, the consultants concluded, would offer spectacular returns for the economies of Alaska, the Yukon and British Columbia, spurring a huge resource extraction industry and snatching a chunk of the Asian import trade.
But a year after the report was released to the public, it has largely faded from view, weighed down by another staggering sum: the approximately $10-billion (U.S.) price tag attached to a project many people like but for which no one is ready to foot the bill. “Everybody steps forward and says this is a good idea,” says Kells Boland, project manager for Alaska Canada Rail Link, the organization which oversaw the study. “They don’t step forward quite so quickly when it comes to funding it.”
The Alaska Railroad stretches closest to Canada at its eastern terminus at Eielson Air Force Base outside of Fairbanks, Alaska. From there, it’s between 2,000 and 2,250 kilometres to reach Hazelton, Mackenzie, Minaret, or Fort Nelson, B.C., the four closest termini of the Canadian rail system. The daunting distances haven’t stopped people from pondering the connection for years; the U.S. Army Corps of Engineers, in particular, considered a railroad to Alaska during World War II but built the Alaska Highway instead.
The idea mainly sat dormant until 2005, when then-Alaska governor Frank Murkowski and Yukon Premier Dennis Fentie agreed to split the $5-million cost of the feasibility study, which was released in June 2007. In the study, the consulting team recommended a route stretching from the B.C. Rail terminus at Hazelton north to Watson Lake, Yukon then northwest to Delta Junction, roughly following the Cassiar, Robert Campbell and Alaska highways. (The 2,114-kilometre route doesn’t include another 145 kilometres of track between Eielson and Delta, which has yet to be built.) The preferred scenario could also incorporate spur lines to tidewater at two Alaskan communities, Skagway (339 kilometres) and/or Haines (another 129 kilometres).
The authors of the thick-with-numbers study concluded that the rail link would be worthwhile, in large part because of its potential to spur coal and iron extraction in Western Canada for export to exploding markets in Asia and to facilitate faster and cheaper shipment of Asian goods to North America. “It’s a priority for us to be able to have a reasonable way to get our resources to market,” notes Terry Hayden, acting deputy minister of economic development for the Yukon government. “Rail could play a part in that.”
The consultants came up with a plethora of possible cargoes for the railroad. First, they estimated about two million tonnes of goods, mainly steel, would be transported on the railroad to support a proposed Alaska natural gas pipeline project. The railroad could carry about nine million tonnes a year of initial mineral exports and of cargo to supply Alaska and the Yukon. An estimated five million tonnes a year of Asian cargo containers would be shipped by the railroad. Last, but certainly not least, the railroad could be used to ship an estimated 38 million tonnes a year of coal from B.C. and iron from the Yukon to Asian markets. With all of these cargo paths clicking, the consultants estimated the line could transport around 50 million tonnes annually in peak years.
But the case for the iron horse is far from ironclad. The consultants concluded that in the most likely scenario the project wouldn’t pay for itself in direct revenue, it would only pull in $7.8-billion (U.S.) over the next 50 years, versus a $10.5-billion (U.S.) price tag (or an even stiffer $10.9-billion (U.S.) one cited elsewhere in the report). The study instead stressed the benefits to Canada and Alaska in terms of jobs, economic stimulus, lower shipping costs and reduced highway maintenance, valuing those at an additional $11.4-billion (U.S.). And a supplemental report figured that tourism on the route would pump an additional $115-million (U.S.) into the economy.
Unsurprisingly, no one from industry or government has jumped at the chance to pay for a multi-billion dollar project with a potential 75 per cent rate of return on costs. “In a way it’s like a chicken and an egg,” says the Hon. Larry Bagnell, the Yukon Territory’s Member of Parliament. “If you don’t build the railroad, people will not make an effort to explore the resources. On the other hand, the private sector is not going to invest in a railroad unless they have a proven source of revenue.”
The study suggested funding might come from a variety of private sources, such as mining or steel companies, rail firms, or track, operating or rolling stock companies. But the funding would need to be supplemented by public entities with government agencies chipping in on costs or otherwise facilitating the process.
“It certainly indicated that there would have to be multiple funding sources in order for the thing to actually come,” Hayden says. “The overall rail initiative is such a large project that it would take a number of participating organizations, private and public, in order to make it happen.”
A major problem with all of these estimates, the report noted, is their speculative nature. “A relatively high degree of confidence is assumed for potential pipeline, resupply and mineral export traffic,” reads the report. “Asian container traffic is assumed somewhat more speculative. B.C. coal and Yukon iron ore exports have huge potential identified in early-stage exploration drilling, but are subject to further feasibility programs.”
The central assumption is that the railroad itself will essentially create the industries that would justify its existence. Large-scale resource extraction in the area of the railroad is practically nonexistent, with the exception of the Minto mine, a copper-gold mine located north of the Yukon village of Carmacks. It currently trucks its ore to Skagway for shipment.
But supporters of the idea note that the Yukon, B.C. and Alaska are all loaded with currently inaccessible mining prospects and argue that extractive industries, especially iron and coal, would flourish if the means of transport were provided. “You can’t get into the iron ore business unless you’ve got a railway,” Boland says flatly. According to the study, were a railway in place, just one major prospect – the Crest iron ore deposit in northeastern Yukon – could produce and ship more than 28 million tonnes of iron ore pellets a year.
And conversely, the same Asian countries importing some of these resources could use the railway to export goods to North America, the study noted. By the consultants’ estimate, shipping a 20-foot container from Asia to New York City via Alaska would take 17 days and cost $1,400 (U.S.), versus 26 days and $1,850 (U.S.) for the same container sent via the Panama Canal.
However, since the report came out industry has not been beating down anyone’s door to fund it. “It’s certainly been given a lot of circulation among the mining community in Western Canada and has been very well received,” Boland insists. “It simply comes down to, you need volume for railways to work, and you need someone with deep pockets to build the infrastructure.”
One discouraging sign comes from London, Ontario-based Fortune Minerals, which owns the Mount Klappan anthracite coal project in northern B.C., not far from the current railroad termini. The company issued a press release last year welcoming the study and encouraging a rail project, but it is also studying the feasibility of transporting the coal through a buried slurry pipeline. When it comes to the railroad, no one, it seems, is holding their breath.
This doesn’t come as a surprise to Boland or other backers of the idea, who acknowledge the railroad is presently untenable from a business viewpoint. But they believe the discovery of more prospects, and other factors like environmental regulations or rising trucking costs, could all conspire to make the idea more feasible in the future. Bagnell says the proposal is likely to sit in a “holding pattern” unless some sort of major find shifts the economics of the enterprise. “They’re always discovering new resources. A good example is 20 years ago no one had ever found a diamond in Canada; now we’re the third-largest producer in the world,” Bagnell says. “It may not be feasible today, it may be feasible tomorrow.”
Boland notes that the study also took a close look at the prospect of a phased construction of the railroad, beginning with smaller, more economical “resource railways,” such as a line running from Carmacks in the Yukon to Skagway or Haines in Alaska. Such routes would still be incredibly pricey, but the economics would, by the consultants’ estimate, be more tenable: a Carmacks-Haines route, including port construction, would cost about $4.9-billion (U.S.) and revenue from the line would cover both construction and operating costs. Hayden says the Yukon government is currently focused on building a business case for such “short track” scenarios and Boland says he expected them to be the first logical step in railroad expansion.
“The future of rail in the North is going to be a combination of trucking operations linking into some focused, shorter rail options that will move minerals into the Yukon as mines go into production in the most efficient manner,” Boland says.
On the other side of the equation is public support and financing, which the report said is crucial to getting a project of this scale off the ground. But the study hasn’t had a impact on legislative halls in Canada or Alaska.
Former Alaska governor Frank Murkowski, a firm supporter of massive infrastructure projects, was arguably the principal supporter of the study. But he was summarily swept out of office in 2006, and his successor, fellow Republican Sarah Palin, hasn’t publicly voiced support for the idea. A Palin spokesman was unable to proffer the governor’s opinion on the rail link, but it doesn’t appear to sit high on her priority list.
When she and Fentie publicly unveiled the results of the study, Palin was noncommittal, saying she would consult Alaskans about the project. In general – with the noteworthy exception of an Alaska Highway gas pipeline – the governor has shied away from the mammoth infrastructure projects so beloved by her predecessor, as well as the system of federal earmarks that often fund such endeavours.
On the other hand, the Alaska Railroad is pursuing a plan to expand the railroad to Delta Junction, about 145 kilometres southeast of its current terminus, to support U.S. Army operations. However, only $44-million (U.S.) has been procured for the project, which is expected to run $800-million (U.S.). The will is there, though: Alaska Railroad spokesman Tim Thompson says that, in addition to the Delta extension, the railroad “fully supports” a railroad extension to the continental rail system.
While the Alaskan expansion plans would seem to bode well for a rail connection, they’re irrelevant to the feasibility study, which operates on the assumption the railroad has already reached Delta Junction. In other words, $800-million (U.S.) in rail construction will be necessary just to reach the baseline of the study.
On the Canadian side, Fentie said at the unveiling of the study he would look to Ottawa for funding help. Hayden says the study has been circulated among “a number of officials” in the federal government.
Transport Canada spokesman Patrick Charette says the department had received a copy of the study, but that no real action had been taken on it because no one from the Yukon had approached the department with a formal request. And Bagnell says he has not heard much discussion of the project in the capital. “Certainly it’s not an issue or topic,” he says. “No other members of Parliament in the North are talking about it much in Ottawa.”
But even if the report never leads to construction, supporters stop short of calling it a waste of money. Boland notes that the consulting team compiled a far-ranging transportation assessment that stretches beyond just railways. And Bagnell adds that feasibility studies are done to get a better grasp on the possibilities. “I was a big fan of having the study done,” he says. “First, so we could see the feasibility. And second of all, you want a document that will convince the private sector to make the investment.”
