‘Invisible Bottlenecks’: Study Calls for National Transportation Infrastructure Strategy to Lower Consumer Fuel Prices

Workers lay pipe during construction of the Trans Mountain pipeline in Abbotsford, B.C., on May 3, 2023. The Canadian Press/Darryl Dyck

Canada could have lower fuel costs and a more vibrant economy if it had more pipelines and a national transportation strategy, says a new report from Canadian think tank C.D. Howe Institute.

In “The Big Squeeze: Lessons from the Trans Mountain Pipeline about the Costs of Invisible Bottlenecks,” published Aug. 13, G. Kent Fellows says a lack of pipeline capacity has cost the oil industry and specifically B.C. motorists.

The B.C. Utilities Commission reported in 2019 that the wholesale cost of gas in Vancouver was 13 cents per litre higher than in Seattle and Edmonton. The provincial government concluded that this was due to collusion and price fixing, and in response passed the Fuel Price Transparency Act in November that year, aiming to combat price increases by compelling market actors to submit fuel data to government administrators.

Fellows, an assistant professor of economics at the University of Calgary’s School of Public Policy, said the province missed the real reason: insufficient pipeline capacity.

He explained that energy pipeline tolls are regulated in Canada, not adjusted based on demand and pipeline capacity, and the National Energy Board (now the Canadian Energy Regulator) would each month ration out pipeline capacity in proportion to the volume shippers say they want to ship.

Until 2006, the Trans Mountain pipeline, which delivers various types of crude oil and refined products from Edmonton area refineries to B.C. cities, had run with excess capacity. However, since then, it has seen prolonged periods of higher demand from shippers than the pipeline could accommodate.

In 2012, the NEB received a complaint saying that, despite verification safeguards, shippers were cheating the system by demanding more capacity than they could use, in hopes of receiving a higher ration. To address this issue, the board changed the verification procedure in 2015. However, the change in effect cut in half the portion of refined products going west through the pipeline, forcing more gasoline to travel to B.C. by higher-cost rail shipments.

By 2023, added transportation expenses contributed to an increased wholesale gasoline price difference of 20 cents to 35 cents per litre between Edmonton and B.C.’s delivery wholesale markets of Kelowna, Vancouver, and Nanaimo, depending on the month and city.

Such problems were lessened after the Trans Mountain pipeline expansion finished in May 2024. Although tariffs on shipments are currently about 5.9 cents per litre higher than pre-expansion tolls, such costs are still less than shipping costs associated with expensive rail. The result will be some gas-price relief for B.C. residents, but not as much as full pipeline availability would offer, Fellows said.

“[I]nsufficient pipeline capacity costs the BC economy an average of around $500 per person per year. Since an average BC household consists of 2.4 people, the average household costs would be close to $1,200 per household per year. This is a remarkable burden, particularly given the recent inflationary issues in Canada,” Fellows wrote.

“Continuing this rough calculation, there are three million people in the BC Lower Mainland. If the average burden associated with insufficient pipeline capacity is $500, then the total cumulative annual costs are in the range of $1.5 billion per year.”

Fellows noted that this does not consider the costs or benefits to the oil industry or Canada’s crude export potential, but is only an estimate of the burden on consumers in B.C.’s Lower Mainland.

Beyond Pipelines

He pointed out that Trans Mountain is perhaps the most visible “Big Squeeze” in terms of infrastructure constraint, but that there are other infrastructure bottlenecks across Canada’s economy that are “invisible bottlenecks.”

“Canada is the largest G7 Nation in terms of geographic area and the smallest in terms of population. We need to be able to move goods and services around the country and its various regions to maintain and grow the economy,” Fellows said.

A report by the European Court of Auditors, cited by Fellows, said Canada is the only Western industrialized economy without a recognizable transportation strategy. It said the EU benchmarked its transportation strategy against those of Australia, Switzerland, and Canada and concluded that Canada does not have a strategy.

Fellows said that in addition to this lack of strategy, the cost of building infrastructure in Canada is “worrying.” The cost of the Trans Mountain pipeline expansion grew from its initial estimate of just over $5 billion when construction began in 2019 to a final updated figure of some $34 billion when it was completed in May 2024.

To Fellows, “perceived regulatory and bureaucratic delays” have left Canada with “a documented issue in attracting infrastructure investment” at the very time when the federal government is reducing spending on these things. And as the Canadian Northern Corridor research program has noted, inadequate road and rail infrastructure also inhibits both internal and international trade.

“Canada needs to do better. At a broad level, we should have a formal national transportation infrastructure strategy. But, more immediately, regulators and provincial governments should better recognize the need for transportation infrastructure investments,” Fellows concluded.