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Commentary: Is the Alaska Railroad on track to the “Lower 48?”

(Photo credit: Alaska Railroad)

The state-owned Alaska Railroad (ARR) is truly one of a kind. Perhaps its remarkable history and potential was what enticed a private company, the Alaska to Alberta Railway Development Corporation (A2A Rail) to pitch its vision of a 1,500-mile rail link from Alaska to northern Alberta. The link, to be completed by 2022 at the earliest, would proceed from the town of North Pole (just south of ARR’s northern terminus in Fairbanks), through the Yukon and parts of British Columbia, to Fort McMurray, Alberta in the heart of the 50,000-square mile Athabasca oil sands industry. ARR would thereby connect to Canada’s and, by extension, the continental United States’ rail networks. Also, the new rail line would offer an alternative means to ship Alberta’s oil to Asian markets. The oil would ship out of Alaska’s ports rather than British Columbia’s – thus avoiding some of the current political disputes in Canada regarding interprovincial oil transport.

The idea of extending ARR’s network in such a bold way is not new. In fact, the current proposal seems to be very modest in comparison to others. Visionaries in the early 20th century, and even World War II-era U.S. Army engineers, examined the possibility of constructing a rail tunnel under the Bering Strait to connect a U.S. rail line with Russia’s wider gauge Trans-Siberian Railway. Of course, a very long rail line of around 3,000 miles would also have been needed just to connect Russia’s end of the tunnel with its rail network north of Vladivostok. After the Cold War some resurrected the idea both to strengthen U.S.-Russia friendship and, of course, to establish U.S. rail access beyond Russia into the Middle East and into China’s growing markets for natural resources. With only 50 miles separating Alaska (at Cape Prince of Wales) and Russia (at Cape Dezhnev), with the islands of Diomede and Big Diomede in-between, a tunnel must look tempting to those with an eye for daring mega-projects. Of course, leaving aside the differences in rail gauges and their rolling stock, the cost of such projects in the harsh Arctic combined with ever-changing East-West politics were always sources of caution. 

A2A Rail wants to raise the $17 billion for its project from private sources and from sovereign wealth funds. About $14 billion of this would be devoted to the Canadian side of the project. ARR and A2A Rail have been in discussions since March of this year and this certainly appears to be the most serious discussion for a bi-national, sub-Arctic rail line in a long time. Of course, this project has one thing in common with the previous ones – how best to connect ARR to far-away markets and increase its network density (which is the lifeblood of any viable railroad).

(Photo credit: Alaska Railroad)

ARR began as a private company in 1903. The Alaska Central Railway proceeded out of Alaska’s maritime gateway, the ice-free Port of Seward, for 50 miles into the Kenai Peninsula. Through the Alaska Railroad Act of 1914, Congress authorized the purchase of the railroad from its struggling private owners and voted to fund construction northward through Anchorage up to Fairbanks. The project was completed in 1923 when President Harding drove the final (golden) spike at the town of Nenana where the railroad connected with the Fairbanks-based Tanana Valley Railroad (also bought by the federal government). Alaska’s only commercial railroad would remain under federal control until it was transferred to the state in 1985.

Before state ownership, ARR’s rail network had not changed very much. But perhaps the biggest addition was the construction of the Port of Whittier in 1943 to support the U.S. war effort. In order to reach the rest of the state two massive rail tunnels were blasted through Maynard Mountain and Begich Peak (both a part of the Chugach mountain range) in order to lay a rail spur from the port to the railroad’s mainline. At 2.5 miles in length, the Anton Anderson Memorial Tunnel is the longest railroad tunnel in the U.S. In 2000 the tunnel was fitted to allow for a single toll-lane of vehicular traffic in alternating directions. Naturally, vehicles are not allowed in the tunnels at the same time as trains. Unlike the vehicular traffic, however, the trains must proceed through the second, one-mile long tunnel through Begich Peak before reaching the mainline. Since 1962 the Port of Whittier has been the means by which rail cars are barged to and from the Port of Prince Rupert, British Columbia and the Port of Seattle. This is part of the longest rail haul in the U.S. The interline service from Panama City, Florida to Fairbanks covers over 4,800 miles. Though the rail barge services work fairly well, arrivals and departures can be impeded by erratic and harsh marine weather.

When the State of Alaska took control of ARR it was reestablished as a quasi-public entity with a board of directors overseeing the executive officers who run it. Basically, ARR is self-sustaining in the way any private sector corporation would be. What makes ARR unique is that it is three distinct businesses in one – passenger rail, bulk freight transport and real estate. Most people who think about ARR think of its shiny blue and gold passenger cars that provide the quintessential Alaska tourist experience. About half of ARR’s roughly 450,000 passengers per year disembark from cruise ships and ride on private rail cars owned by the cruise lines. The rest are other tourists (arriving by airplane or the Alaska Highway) and Alaska residents themselves.

Even most Alaskans think of ARR only as a passenger service. However, for bulk freight transport (i.e., gravel, coal and petroleum) in south-central Alaska up to Fairbanks, ARR is critical to the state’s economy. Haulage is around 5 million tons of freight per year. ARR also owns about 36,000 acres of land, half of which are part of its rail network infrastructure. ARR’s property includes a 200-foot right-of-way (i.e., 100 feet measured on each side from the center of the track) though it can narrow in urban areas. Beyond the rail network infrastructure, its real estate holdings include the two tunnels at Whittier and the cruise ship dock at the Port of Seward. The balance of ARR’s acreage is available for leasing. This acts as a source of fiscal stability for ARR when economic activity and/or tourism declines. Currently, about 3,000 acres are under lease or permit.  

Governments in Alaska and Alberta have subsidized studies of a bi-national rail line since the early 2000s. Of course, studies showing that rail access is often critical to the success of large resource extraction industries go back many decades. So, there is no doubt that rail is important. The question is whether there is enough private and government funding to pull off what ARR and A2A Rail have in mind. Since Alaska’s government is cash-strapped right now due to low oil prices (and its dependency on the crude oil sector for 90% of its tax revenue) the onus will be on ARR and A2A Rail to make their project pay for itself (at least on the Alaska side of the border).    

A great deal of work remains before the massive construction can begin. There will have to be numerous environmental impact studies, consultation with affected communities (i.e., Alaska Natives and Canada’s First Nations) and the establishment of rights-of-way under state, provincial and federal laws. Apart from pipelines, rail is the most capital- intensive of the five basic modes of transport. It requires paying significant upfront fixed costs before sufficient economies of scale occur. While this project may not be as daring as a rail line from Kansas City to Karachi or from Baton Rouge to Beijing, it is still quite visionary and befits the pioneer spirit of Alaska.



    In the article it says the longest rail tunnel in the us is in Alaska at 2.5 miles but there is a longer one in Washington state

  2. Bob Cox

    I’d be very interested in seeing the economics of operating the rail line in comparison to alternative modes of transport to/from Alaska. Is there a payback for the capital investment or is meant to be perpetually subsidized?

    1. Don Hurls

      I would like to see what the return on investment is for the roads that lead out of Fort Mac… Or will they forever be subsidized….

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Darren Prokop

Darren Prokop is a Professor of Logistics in the College of Business and Public Policy at the University of Alaska Anchorage. He received his Ph.D. in economics from the University of Manitoba in 1999. Prior to his academic career Darren Prokop worked in government as an economist and in the private sector in inventory planning.