Business·Q&A

What it really means for Alberta to 'turn off the taps' on oil to B.C.

Dinara Millington, vice-president of research at the Canadian Energy Research Institute, explains what happens if Alberta ever decides to "turn off the taps" on oil and gas exports to British Columbia.

'You can imagine there will be an immediate price impact,' economist says

UCP Leader Jason Kenney says the new law — which gives Alberta the power to cut oil and gas exports to other provinces — will only be deployed as a measure of last resort if the B.C. government continues to obstruct the Trans Mountain pipeline expansion. (CBC)

Alberta Premier Jason Kenney now has the political authority to "turn off the taps" on oil and gas exports to British Columbia should he choose to do it.

Kenney confirmed Wednesday that the legislation has been proclaimed into law — though B.C. moved quickly to dispute his legal ability to actually use it. 

Kenney himself cautioned the measure would only be used as last resort should the B.C. government stay the course in trying to block development of the Trans Mountain pipeline expansion.

For now, the possibility of closed taps might feel a little distant.

But what if the Alberta government did eventually act? What if all the constitutional tests tilted in Alberta's favour?

CBC News asked Dinara Millington, vice-president of research at the Canadian Energy Research Institute, to explain what it could really mean for Alberta to "turns off the taps" to B.C.

The interview has been edited for length and clarity.

For consumers, Millington says there will be an 'immediate price impact' if Alberta cuts oil and gas shipments to B.C. (Denis Dossman/CBC)

Are there "taps" to be turned off?

"No, there is no actual physical taps that say Refined Petroleum Products to B.C. — turn that off. No, there are no actual, physical taps."

How would Alberta 'turn off the taps' if the new law is used?

"It will give the Alberta government the authority to control what's flowing through the pipeline and in what volume. So basically the producers or the shippers will have to apply for a license that would stipulate what product is being shipped and what volume. Then the government will have the decision to make whether that's going to be allowed through or not.

"What's most likely going to happen is the squeezing out of certain types of crude or refined petroleum products to British Columbia — so, altering the mix of products that flow down the pipe. That could sort of induce that market discomfort in B.C. I don't think it's going to cripple the market but there will be an overall market discomfort.

"If more heavy crude or conventional light crude is being shipped, that might squeeze the room for refined petroleum products like gasoline and diesel, for example, that's being shipped to British Columbia."

How big would the effect be on B.C. consumers?

"The effect on consumers in B.C. would be through the relationship of supply, demand and pricing. And if your supply is going to shrink and demand is going to continue to be the same or even grow, you can imagine there will be an immediate price impact.

"Probably the most impacted portions of the B.C. economy would be those businesses and individuals that do not have the ability to switch fuels.

"If you're driving a vehicle, you're not going to go out and buy an [electric vehicle]. You might, but that's an investment that takes time. Another sector that I can see that would be heavily impacted [would be] forestry and agriculture and even the mining sector because they're very dependent on diesel fuel and they don't really have a lot of other choice to switch the fuel."

Steel pipe to be used in the oil pipeline construction of the Trans Mountain Expansion Project sits on rail cars at a stockpile site in Kamloops, B.C., in May, 2018. (Dennis Owen/Reuters)

What impact could this have on Alberta refineries?

"Alberta refineries that do supply a certain amount of volume to the market, they would have to find another market segment where they can sell their products to. The Alberta domestic consumption market is not large enough to absorb all that volume. So if refineries cannot find homes for their product, they'll be definitely impacted — and the impact will be on their margins."

When the taps are turned back on, how quickly would the situation be rectified?

"As the supply sort of returns back to its normal conditions, I would say you will see an immediate impact on price.  Outside of the overall market segment, the relationship between the governments and things like that might be impacted.

But in my opinion, the Alberta government, B.C. government and the feds should find a compromise to the situation instead of risking the escalation of the situation."

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