Could Alberta bring B.C. to its knees by shutting off the oil?
If they don’t like pipelines, let’s see if B.C. likes having a main supply of gasoline turned off
Last week, B.C.’s provincial government announced an 11th hour series of provincial restrictions seemingly aimed at blocking construction of a federally approved $7.4-billion expansion of the Trans Mountain pipeline.
The move has sparked outrage from Alberta’s NDP government, and spurred promises of a blockade on imports of B.C. wine.
In these tense times, a common Alberta fantasy is to simply do like Vladimir Putin and shut down the Trans Mountain pipeline, denying a key source of gasoline to an ungrateful B.C.
Below, a look at the economics of doing such a thing.
Vancouver gas prices would indeed spike
Dan McTeague, a senior analyst with GasBuddy.com, thinks a sudden shutdown of the Trans Mountain pipeline could cause Vancouver gas prices to spike above $2 per litre. He pointed to the recent spike in Vancouver gas prices brought about by routine maintenance at Metro Vancouver’s only refinery in Burnaby. If scheduled maintenance can cause noticeable price spikes, “a permanent shut off would cause absolute chaos,” he wrote in an email. However, other analysts aren’t quite as apocalyptic as McTeague. “The logistical system for petroleum products is highly robust,” said Michael Ervin with Kent Group petroleum consultants. A classic example is Hurricane Katrina. Despite a major region of U.S. oil production being shut down with little warning, North Americans were never subjected to particularly devastating price spikes. Although closing the pipeline would cut off 300 gas stations’ worth of fuel to B.C., Ervin forecasts a temporary price spike no higher than 20 cents.
Dan McTeague, a senior analyst with GasBuddy.com, thinks a sudden shutdown of the Trans Mountain pipeline could cause Vancouver gas prices to spike above $2 per litre. He pointed to the recent spike in Vancouver gas prices brought about by routine maintenance at Metro Vancouver’s only refinery in Burnaby. If scheduled maintenance can cause noticeable price spikes, “a permanent shut off would cause absolute chaos,” he wrote in an email. However, other analysts aren’t quite as apocalyptic as McTeague. “The logistical system for petroleum products is highly robust,” said Michael Ervin with Kent Group petroleum consultants. A classic example is Hurricane Katrina. Despite a major region of U.S. oil production being shut down with little warning, North Americans were never subjected to particularly devastating price spikes. Although closing the pipeline would cut off 300 gas stations’ worth of fuel to B.C., Ervin forecasts a temporary price spike no higher than 20 cents.
Vancouver air traffic could be brought to a standstill One of the lesser known roles of the Trans Mountain pipeline is as a key supplier of jet fuel to the Vancouver International Airport. “If the (Trans Mountain pipeline) currently feeding YVR would become unavailable today, there would be significant impact to flight operations at YVR,” read a statement from the Vancouver Airport Fuel Facilities Corporation. It added, “the only other method of supplying the airport with jet fuelis via tanker trucks, which would not be sustainable.” Vancouver International is Canada’s second-busiest airport, so significant flight cancellations here would likely be the most noticeable effect of a pipeline shutdown. However, even if Alberta could shut down oil exports through the pipeline, it would need to find a way to shut down the entire pipeline network to cut off the airport.
Kamloops would be hit hardest
Kamloops is a major terminal on the Trans Mountain pipeline. Unlike Vancouver, however, it doesn’t have a port, refineries or easy access to the U.S. market. Thus, any cut to the oil supply would need to be plugged with trucks and trains, imposing a permanent price hike of as much as five cents per litre. Alberta would be well-advised to question the utility of punishing Kamloops, however. The ideal goal of a pipeline shutdown would be to hurt a bunch of granola-munching Greenpeace-types who forgot that they still need petroleum to get to their ski vacations. Kamloops, however, consistently votes conservative, is filled with thousands of retired Albertans and has a council that openly supports the Trans Mountain expansion. They might justifiably question why they are the hardest-hit victims of a petroleum trade war.
Kamloops is a major terminal on the Trans Mountain pipeline. Unlike Vancouver, however, it doesn’t have a port, refineries or easy access to the U.S. market. Thus, any cut to the oil supply would need to be plugged with trucks and trains, imposing a permanent price hike of as much as five cents per litre. Alberta would be well-advised to question the utility of punishing Kamloops, however. The ideal goal of a pipeline shutdown would be to hurt a bunch of granola-munching Greenpeace-types who forgot that they still need petroleum to get to their ski vacations. Kamloops, however, consistently votes conservative, is filled with thousands of retired Albertans and has a council that openly supports the Trans Mountain expansion. They might justifiably question why they are the hardest-hit victims of a petroleum trade war.
Very quickly, most of B.C. wouldn’t notice
It’s very hard to blockade a place with a port. B.C. can import refined products from as far away as China. Meanwhile, there are plenty of Washington State refineries ready to start sending gasoline over the border in a moment’s notice. All of these methods would be a few cents’ more expensive than the Trans Mountain pipeline, but given the volatile pricing of a product like gasoline, it’s unlikely that it would be particularly noticeable at the pump. At any one time, B.C. also has a fair amount of stored petroleum. The Trans Mountain Pipeline is unique in its ability to carry multiple petroleum products at once. At any one time, the pipeline can contain a rainbow of crude oil, jet fuel and diesel. This means that B.C. terminals all maintain large gasoline storage tanks to tide them over while the pipeline is moving crude. In a sudden shutdown Vancouver already has enough gasoline and jet fuel on hand to keep cars on the road and planes in the air until American supplies can plug the gap.
It’s very hard to blockade a place with a port. B.C. can import refined products from as far away as China. Meanwhile, there are plenty of Washington State refineries ready to start sending gasoline over the border in a moment’s notice. All of these methods would be a few cents’ more expensive than the Trans Mountain pipeline, but given the volatile pricing of a product like gasoline, it’s unlikely that it would be particularly noticeable at the pump. At any one time, B.C. also has a fair amount of stored petroleum. The Trans Mountain Pipeline is unique in its ability to carry multiple petroleum products at once. At any one time, the pipeline can contain a rainbow of crude oil, jet fuel and diesel. This means that B.C. terminals all maintain large gasoline storage tanks to tide them over while the pipeline is moving crude. In a sudden shutdown Vancouver already has enough gasoline and jet fuel on hand to keep cars on the road and planes in the air until American supplies can plug the gap.
However, it could ironically mean more oil spilling on B.C.
One of the main reasons B.C. is opposing an expansion of the Trans Mountain Pipeline is because it would bring more tankers to West Coast waters. One ironic twist of a pipeline shutdown is that B.C. would need to bring in their fuel with more barges in the Salish Sea, more oil trains on railroad tracks and more oil trucks on highways. All of these methods are much more precarious than a pipeline, so Alberta could score a poetic victory in that a suddenly pipeline-free B.C. would almost certainly start experiencing more spills.
One of the main reasons B.C. is opposing an expansion of the Trans Mountain Pipeline is because it would bring more tankers to West Coast waters. One ironic twist of a pipeline shutdown is that B.C. would need to bring in their fuel with more barges in the Salish Sea, more oil trains on railroad tracks and more oil trucks on highways. All of these methods are much more precarious than a pipeline, so Alberta could score a poetic victory in that a suddenly pipeline-free B.C. would almost certainly start experiencing more spills.
The economic blowback on Alberta would be devastating
By almost any measure, shutting down the Trans Mountain pipeline would utterly blow up in Alberta’s face. For one thing, the province would be cutting off a major buyer for its oil; as much as one third of Alberta oil production makes it to market through the Trans Mountain pipeline. And again, it’s not like Alberta would be plunging B.C. into a Mad Max-style dystopia of fuel scarcity. “It’s pretty hard to hold someone hostage … when they have a port,” said Andrew Leach, a resource economist at the University of Alberta. By contrast, he said “its’ really easy for B.C. to hold us hostage.” Shutting down a pipeline is also wildly unfriendly to investment. Canada has long been a preferred market for oil investment for the simple reason that our governments don’t do impulsive things like blockading infrastructure in order to annoy a neighbouring government.
By almost any measure, shutting down the Trans Mountain pipeline would utterly blow up in Alberta’s face. For one thing, the province would be cutting off a major buyer for its oil; as much as one third of Alberta oil production makes it to market through the Trans Mountain pipeline. And again, it’s not like Alberta would be plunging B.C. into a Mad Max-style dystopia of fuel scarcity. “It’s pretty hard to hold someone hostage … when they have a port,” said Andrew Leach, a resource economist at the University of Alberta. By contrast, he said “its’ really easy for B.C. to hold us hostage.” Shutting down a pipeline is also wildly unfriendly to investment. Canada has long been a preferred market for oil investment for the simple reason that our governments don’t do impulsive things like blockading infrastructure in order to annoy a neighbouring government.
It’s somewhat hypocritical
The Alberta position is that B.C. actions against the Trans Mountain pipeline expansion are breaking the law. In the words of Alberta premier Rachel Notley, the province’s actions are “both illegal and unconstitutional.” The gist is that waterways and interprovincial pipelines are federally regulated, so B.C. is acting beyond its jurisdiction in thinking that it can suddenly dictate both of these things. Using the same logic, it would also be illegal for Alberta to somehow commandeer privately owned infrastructure in order to settle trade feuds. The only legal way Alberta could shut down Trans Mountain would be through collusion with Kinder Morgan, the pipeline’s owners. That said, there are shady ways it could be done. The province could cut electricity to a Trans Mountain facility on some kind of trumped up pretense. Or, in a pinch, an Alberta road crew could be sent to “accidentally” rupture the pipeline.
The Alberta position is that B.C. actions against the Trans Mountain pipeline expansion are breaking the law. In the words of Alberta premier Rachel Notley, the province’s actions are “both illegal and unconstitutional.” The gist is that waterways and interprovincial pipelines are federally regulated, so B.C. is acting beyond its jurisdiction in thinking that it can suddenly dictate both of these things. Using the same logic, it would also be illegal for Alberta to somehow commandeer privately owned infrastructure in order to settle trade feuds. The only legal way Alberta could shut down Trans Mountain would be through collusion with Kinder Morgan, the pipeline’s owners. That said, there are shady ways it could be done. The province could cut electricity to a Trans Mountain facility on some kind of trumped up pretense. Or, in a pinch, an Alberta road crew could be sent to “accidentally” rupture the pipeline.
There might be another way
One way to hurt B.C. consumers without simultaneously shooting Alberta in the foot would be to stop shipping gasoline and diesel through Trans Mountain and use the pipeline exclusively to pump diluted bitumen. This would have the same effect on prices at B.C. gas stations, since it would effectively cut off the province’s supply of Albertan refined products. Diluted bitumen is purely an export product; the Burnaby Refinery can’t process it. Meanwhile, with thousands of barrels more diluted bitumen flowing out of Alberta, it would mean more profitability for the oil sector. Western Canadian Select, the primary variety of oil produced in Alberta, is sold at a significant discount for the simple reason that there are very few ways to get it to global consumers. Thus, the more diluted bitumen that can be pumped onto Port Metro Vancouver tankers bound for China, the more that discount slims. As one energy expert told the National Post, simply taking the refined products out of the Trans Mountain would be an anti-B.C. pressure tactic “that is premised on less malevolent grounds.”
One way to hurt B.C. consumers without simultaneously shooting Alberta in the foot would be to stop shipping gasoline and diesel through Trans Mountain and use the pipeline exclusively to pump diluted bitumen. This would have the same effect on prices at B.C. gas stations, since it would effectively cut off the province’s supply of Albertan refined products. Diluted bitumen is purely an export product; the Burnaby Refinery can’t process it. Meanwhile, with thousands of barrels more diluted bitumen flowing out of Alberta, it would mean more profitability for the oil sector. Western Canadian Select, the primary variety of oil produced in Alberta, is sold at a significant discount for the simple reason that there are very few ways to get it to global consumers. Thus, the more diluted bitumen that can be pumped onto Port Metro Vancouver tankers bound for China, the more that discount slims. As one energy expert told the National Post, simply taking the refined products out of the Trans Mountain would be an anti-B.C. pressure tactic “that is premised on less malevolent grounds.”
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