High Fuel Prices Related to Lack of Pipeline Infrastructure
G. KENT FELLOWS
BRITISH COLUMBIA – Over the last decade invisible pipeline bottlenecks cost British Columbians big time – squeezing BC Lower Mainland residents by an estimated $1.5 billion per year prior to the completion of the Trans Mountain Pipeline Expansion, according to a new report from the C.D. Howe Institute.
In “The Big Squeeze: Lessons from the Trans Mountain Pipeline about the Costs of Invisible Bottlenecks,” author and C.D. Howe Institute Fellow-in-Residence G. Kent Fellows finds that the province’s high gasoline prices over much of the last decade were a direct result of constraints on the Trans Mountain Pipeline; not market power in retail and wholesale gasoline prices as previously investigated by the BC Utilities Commission.
The cause of these high fuel prices is related to a lack of pipeline infrastructure rather than collusion between wholesale distributors or retail gas stations, according to Fellows.
“Trans Mountain represents the most visible Big Squeeze when it comes to infrastructure constraints and should serve as a cautionary tale on the broader cost implications and risk of infrastructure constraints,” says Fellows. “Misdiagnosing a lack of infrastructure as a market power issue does not help Canada’s problem with attracting infrastructure investment.”
The author calculates that before the completion of the Trans Mountain Expansion, insufficient pipeline capacity was costing the BC economy a rough average of $500 per person per year, close to $1,200 per year for an average household (2.4 people). The total cost on residents is roughly $1.5 billion per year before accounting for any industry profits or Canada’s crude oil export potential.
A remarkable burden, according to Fellows, especially given Canada’s recent high inflation.
“Transportation infrastructure is paramount to the entire energy sector, where issues related to electricity transmission capacity and interties and LNG export capacity are at the forefront of today’s energy policy discussions. But the problem is even broader than that,” says Fellows.
“Every productive sector in the Canadian economy requires high-quality transportation or telecommunications infrastructure to function; and as the largest G7 Nation by geographic area and the smallest by population, we need to be able to move goods and services around the country to both maintain and grow our economy.”
Overall, Fellows recommends Canada have a formal national transportation strategy, and that regulators and provincial governments better recognize the importance of transportation infrastructure investments as well as their implicit and explicit value. “If governments and regulators cannot recognize the Big Squeeze that was pre-expansion Trans Mountain, we have little hope of avoiding, recognizing, and mitigating other smaller squeezes across the country,” he concludes.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
