Alberta Premier Jason Kenney is appealing to British Columbians to put pressure on their provincial government to step out of the way of the Trans Mountain pipeline expansion, linking the spike in gas prices experienced this spring in parts of B.C. to the conflict over oil shipments.
It is possible that building the expansion project will cool off gas prices. But there is no guarantee.
Until now, the case for the Trans Mountain pipeline expansion (TMX) project has been framed primarily as a means to get more Alberta crude oil to overseas markets.
But B.C.’s gas crunch has created a political problem for Premier John Horgan’s government, which was elected on the promise to make life more affordable for British Columbians. And that has created an opportunity for Mr. Kenney to sell the project as a solution to a domestic supply problem in British Columbia – a problem that has helped drive gas prices to record-breaking levels in the Lower Mainland and on Vancouver Island.
Will it actually reduce prices, though? The 2015 economic analysis produced by the energy consulting firm Muse, Stancil & Co. to support TMX makes clear that the expansion is for crude oil, not the refined fuel that B.C. needs. Parkland, the Lower Mainland’s only refinery, is already running full-tilt and cannot come close to meeting domestic demand.
“Muse has been advised by Trans Mountain to assume that … refined product shipments will not increase as a result of [the pipeline expansion],” states the report, titled Market Prospects and Benefits Analysis of the Trans Mountain Expansion Project for Trans Mountain Pipeline. It was filed by the pipeline proponent with the National Energy Board to help justify the need for the project.
The Muse report estimates that the project will be good for Alberta’s oil producers, but not so much for B.C. consumers.
“The startup of [the Trans Mountain expansion project] will act to increase the price of crude oil at Edmonton because roughly 79,500 [cubic metres a day] of crude oil is diverted from the existing North American markets to Northeast Asia.”
Still, Dan McTeague, senior petroleum analyst for gasbuddy.com, predicts that completing TMX would provide some relief in the B.C. market, because it would allow for more supply.
“The new pipeline would be entirely devoted to heavy oil, but the existing pipeline would be expanded by 50,000 barrels per day," he noted in an interview. Because Vancouver drivers are paying a premium for gas, he believes producers will want to use the existing pipeline to reach the Vancouver market.
British Columbia does not have enough refining capacity to meet demands for motor fuel, so it relies heavily on the existing Trans Mountain pipeline for fuel supplies. Refiners can – and do – charge a premium in the Vancouver market because supply is tight and demand is high.
Jason Parent, managing director of the Canadian fuel analytics firm Kent Group Ltd., cautions that more pipeline capacity doesn’t ensure lower prices and it may not ease supply at all.
“It’s not that simple. Trans Mountain is part of the issue, but expanding Trans Mountain is going to take some time to have an effect on the market," he said, “and there is no guarantee it actually increases the amount of space on the line for refined product.”
But sometimes in politics, the details are glossed over. Last week, both Alberta’s new Premier and the BC Liberal Opposition were on the same page about the reason for the gas price spike: The Liberals are paying for “Blame John Horgan” billboards.
In response, Mr. Horgan pointed out that since Trans Mountain was purchased by the federal government last year, the pipeline is supplying less refined product to B.C.
Not only that, but data provided by the National Energy Board show that there was less domestic product in the pipeline in 2018 than in any of the past 12 years.
Mr. Horgan is asking Mr. Trudeau to intervene: “I’m hopeful that the federal government, if they see this as a project in the national interest, will also see a national interest in making rational pricing in the Lower Mainland when it comes to retail gasoline” the B.C. Premier told reporters.
The problem with the “blame Ottawa” narrative is that the pipeline owner doesn’t decide what runs through the pipe.
The pipeline is regulated by the National Energy Board, and even the NEB isn’t supposed to tip the scales of what flows through the pipeline. Shippers decide which petroleum products to move, and by law, a pipeline company cannot discriminate, or prioritize, between shipments of heavy, light or refined petroleum products.
Finding a villain for gas prices, it turns out, isn’t simple. But, “blame the regulator for permitting a free market" doesn’t really work on a billboard.