A C.D. Howe Institute report on Tuesday found fuel prices in B.C. began to decouple from neighbouring Alberta in 2015.
British Columbia Lower Mainland residents may get some relief from high gas and diesel prices due to the recently expanded Trans Mountain pipeline. That’s according to a new report estimating prior bottlenecks jacked up costs by $1.5 billion per year since 2015.
An analysis released by the C.D. Howe Institute on Tuesday found fuel prices in B.C. began to decouple from neighbouring Alberta in mid-2015, and have generally outpaced western Canadian prices and the national average since then.
Researchers point to a rule change that year by the National Energy Board, since renamed the Canada Energy Regulator, aimed at preventing shippers on the pipeline from “gaming” the system in competition for Trans Mountain’s maxed out capacity.
This, they say, caused an increase in crude oil shipments and a reduction in the amount of refined products like gasoline and diesel sent to the Lower Mainland.
Trans Mountain spans approximately 1,150 kilometres from Edmonton to B.C.’s West Coast. Due to the Rocky Mountains, B.C. has limited resupply options, making the region prone to price spikes, despite having a refinery in Burnaby.
“A ‘big squeeze’ on gasoline and diesel shipments is responsible for a pronounced increase in wholesale fuel prices in the Lower Mainland BC that has cost residents an estimated $1.5 billion per year,” C.D. Howe Institute fellow-in-residence G. Kent Fellows wrote in the report. “A rough calculation suggests that insufficient pipeline capacity costs the B.C. economy an average of around $500 per person per year.”
In 2013, former Trans Mountain owner Kinder Morgan Canada applied for regulatory approval to more than double the size of the pipeline, with an initial completion date estimated in 2019. After significant cost overruns and delays, an expansion from 300,000 barrels per day to 890,000 barrels per day went into service on May 1.
According to C.D. Howe, higher shipping tolls on Trans Mountain since the expansion are more than offset by the lower costs from relieving the bottleneck, and fewer barrels being moved via the pricier option of rail.
“B.C. residents should see some gas-price relief,” wrote Fellows.
His report’s findings differ from a B.C. government-led inquiry into retail and wholesale gasoline prices completed in 2019.
“Such efforts are off target, since the cause of these high fuel prices is related to a lack of pipeline capacity rather than any collusion between wholesale distributors or retail gas stations,” Fellows wrote.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
Download the Yahoo Finance app, available for Apple and Android.