Why Gasoline Prices Are High in BC (and Jason Kenney Is Wrong)

Alberta Premier Jason Kenney has wasted no time engaging in belligerent actions to “get Alberta’s resources to market.” Right off the bat he passed the “turn off the taps” bill to cut off B.C.’s supply of oil if the province doesn’t reverse its stance opposing the Trans Mountain pipeline expansion.

He also claimed that Lower Mainland gas prices are high because “the B.C. government has opposed the expansion of this pipeline and in so doing they’ve driven up gasoline prices in the Lower Mainland.” So how real is Kenney’s bluster?

Gas prices are a function of supply and demand (since 2006, B.C. gasoline demand has increased 13 per cent and diesel demand has increased eight per cent). Metro Vancouver’s supply depends on shipments of refined products on the existing Trans Mountain pipeline, output from the Parkland-owned refinery in Burnaby, and imports from refineries in Washington state.

Over the 2006 to 2016 period, on average about half (48 per cent) of the oil flowing through the Trans Mountain pipeline went to refineries in Washington state, a little over a third (35 per cent) went to Burnaby, and the rest (17 per cent) was exported by tanker via the Westridge Terminal. Of the shipments to Burnaby, 54 per cent were refined products and 46 per cent was light oil for the Parkland refinery.

In 2018, shipments to Burnaby were reduced to 27 per cent of the pipeline’s throughput, exports to Washington state increased to 52 per cent and exports of heavy oil via tanker were increased to 21 per cent.

Of the reduction in shipments to Burnaby, refined petroleum products were down 47 per cent from the 2006 to 2016 average of 52,400 barrels per day. This created a shortfall of 3.9 million litres per day of refined products (18 per cent of Metro Vancouver’s demand), which was largely responsible for the fuel price spike.

The steep decline in refined product shipments since the 2016 approval of Trans Mountain pipeline expansion is curious. Despite the impact on prices, no explanations have been offered by the new owner of the pipeline — the federal government — which has declared that the expansion “will be built” despite B.C. opposition.

Kenney has made cheap political hay by claiming that high prices are all B.C.’s fault and if only B.C. had supported the expansion things would be different. But this is pure political theatre — as is the claim that opposition to the expansion is costing Alberta jobs and revenues.

First, there is no capacity constraint on the existing pipeline.

High prices are largely due to cutbacks in shipments of refined products, which averaged only 18 per cent of the current pipeline’s capacity through 2016 and less than 10 per cent in 2018.

Second, despite Kenney’s bluster, there is no chance that the Trans Mountain pipeline expansion could be built before 2022 at the earliest.

And even if it is built, it is intended for heavy oil export, not for providing more refined products to B.C. So, B.C.’s opposition is currently having zero impact on prices.

Third, Kenney never talks about two new export pipelines that have long been approved by the federal government: Line 3 and Keystone XL.

These pipelines will have double the export capacity of the Trans Mountain pipeline. Line 3 will be completed in 2020, and Keystone XL will likely be completed in 2021.

Fourth, Kenney has bought the myth of higher prices in Asia hook, line and sinker.

If he cared to compare prices of heavy, sour crude oil in the Far East compared to the U.S. Gulf Coast, the price in the Far East is $1 to $3 per barrel lower, plus the transport costs via Trans Mountain and tankers will be at least $2 per barrel higher to Asia. Hence building the expansion would mean a loss of $3 to $5 per barrel compared to shipping oil via new pipelines that will be built long before the Trans Mountain expansion.

Kenney also claims that the alleged woes of Alberta’s oil and gas industry are due to foreign funded opposition, whereas the reason there is a pipeline bottleneck is that industry has been so successful in increasing production. Oilsands production has grown 376 per cent since 2000.

Growth on this scale is fundamentally at odds with the reality of climate change, and the need to aggressively reduce emissions. Alberta’s emissions made up 38 per cent of Canada’s total in 2017 and have increased 18 per cent since 2005. Oilsands emissions increased 11.6 per cent in 2017 alone.

Canada needs a viable strategy to meet its long-term energy security and environmental commitments. Kenney’s actions and rhetoric mark a new low in dealing with these issues.