Trans Mountain’s Expansion Will Raise Pump Prices

Higher gasoline prices for Lower Mainland residents are concerning. Recently the price at the pumps has skyrocketed to over $1.50 a litre. The price spike has led to renewed questions about how local consumers can protect themselves from what appears to be unfair pricing practices. 

One hypothesis reported in The Vancouver Sun on March 19 (Twinning Kinder Morgan pipeline will lead to big drop in gas prices, expert says) is that the Trans Mountain expansion will bring relief.  Dan McTeague, who operates the GasBuddy website, is quoted as saying that, “twinning the controversial line could be the only viable option.” 

Regrettably, Mr. McTeague is unaware as to what Kinder Morgan, and its potential shippers — including Imperial Oil and Suncor Inc., who now ship refined products to the Lower Mainland — explained to the National Energy Board (NEB) during Trans Mountain’s review of what the purpose of the project is and how it will be funded. If Trans Mountain’s project proceeds it will raise local pump prices, not lower them. 

The negative impact from the expansion when it increases pump prices for B.C. residents was brought forward by interveners during the review. Certainly most Canadians expect that an increase in the retail price of petroleum products — when the project represents no benefit to the local market — would be considered by the board as a “cost” and this cost would be factored into its decision. It was not. 

Kinder Morgan acknowledged that higher “gasoline and other petroleum prices facing end users is of interest to the public” but concluded they were are not a public interest concern the board need consider. The board agreed.

The cost to deliver light crude oil or refined petroleum products such as gasoline and diesel to Burnaby along the existing Trans Mountain pipeline is about $2.50 a barrel. We know this because Kinder Morgan must file the tolls it charges — by product and delivery destination — with the National Energy Board. 

Kinder Morgan has always intended to help pay for Trans Mountain’s expansion by raising the tolls charged on its existing line even though the project is being built solely to serve foreign markets. This means that when the expansion is built, the tolls charged to deliver the same barrel of gasoline to B.C. along the existing line will more than double. This information is also available from the NEB.

If Kinder Morgan relied on toll charges on the new line to fully pay for the capital and operating cost of the new line it is unlikely the project would be commercially viable. Instead, motorists and other users of petroleum products in B.C. will be relied on to subsidize the expansion through the retail price they pay.

At the current capital cost for the project, building the expansion raises tolls for petroleum product delivery on the existing line to about $5.90 per barrel — an increase in toll rates of 136 per cent. A $3.40 a barrel increase in transportation charges equates to more than 2 cents per litre. 

B.C. motorists buy about 4.6 billion litres of gasoline a year and about 1.8 billion litres of diesel. Increased transportation charges get passed on at the pumps — marketers see it as a cost of doing business and without any meaningful competition in the marketplace, are effectively able to completely shift the charge onto consumers. 

What this means is that not only will pump prices rise if Trans Mountain’s expansion is built, more than $100 million a year will be siphoned away from the B.C. economy to help pay for a new pipeline that provides the local economy with no market enhancement benefit.

Robyn Allan is an independent economist who has held executive positions in the private and public sectors, including president and CEO of the Insurance Corp. of British Columbia and senior economist for the B.C. Central Credit Union.

[Kinder Morgan's Trans Mountain pipeline in Burnaby serves as a local distribution plant for crude oil and refined products to local terminals, the local refinery and the Westridge Marine Terminal. According to National Energy Board filings, Kinder Morgan intends to help pay for the Trans Mountain expansion project by raising the tolls charged on its existing line. NICK PROCAYLO / PNG]