Canadian drivers may think that TransCanada’s Energy East pipeline, which will allow Alberta to ramp up oil sands production while boosting the flow of oil to eastern Canada, will translate into lower pump prices. Think again.

By connecting land-locked oil deposits in Alberta and North Dakota with world markets, pipelines and railways aren’t just letting industry pull more oil out of the ground — they’re also connecting those oil flows to world prices. That’s something this continent hasn’t seen much of lately. Earlier this year, for instance, Western Canadian Select, the benchmark price for bitumen from the oil sands, traded at nearly half the price of Brent crude. Such a steep discount set off alarm bells in Alberta, as well as in finance minister Jim Flaherty’s office.

A lack of oil-moving infrastructure to handle the rising volumes of crude from western Canada put domestic oil on sale. Not only did that hammer industry profits, but it also slashed the amount of money flowing into public coffers in Alberta and Ottawa.

Canada’s oil industry saw this coming, but still found itself caught flat-footed. As oil sands production continues to rise, industry’s need to get crude to an ocean becomes more urgent. At this point, oil sands players are getting less picky about which ocean that turns out to be. If the Pacific route is closed, they’ll push on to the Atlantic. And if TransCanada’s Energy East proposal doesn’t fly, then plans are already afoot to take advantage of melting Arctic sea ice and head north. Once oil can be loaded onto a sea-borne tanker, it can fetch global prices.

Connecting land-locked oil to an ocean is a great outcome for the Suncors, Shells, and Imperial Oils of the world, but what does it do for Canadians filling up at the pumps? Not what one might think.

A surplus of oil in North America means crude prices in Canada and the U.S. have been trading well below world prices. While the energy industry had to accept getting short-changed for a while, it hasn’t sat on its hands. It began putting hundreds of thousands of barrels a day on railcars, while also turning around pipeline projects in Texas and the Midwest. That’s helped to alleviate the glut of oil responsible for the gap between the price of North American barrels and those elsewhere. Domestic oil prices are now much closer to those in the rest of the world. As more pipelines are built to take oil to a coast, North American prices will continue to merge with global oil markets.

But that price convergence also means Canadians will pay that much more every time they fill up their cars. Make no mistake about it, as more Alberta oil ends up on the high seas, the more Canadian oil prices will mirror the higher prices paid in the rest of the world. When the price of oil rises, clearly, the cost of gas at your neighbourhood station goes up as well.

I wonder if Prime Minister Harper will mention higher domestic pump prices the next time he extols the nation-building merits of the proposed west-east pipeline?

Canadian motorists, like American ones, will be hard pressed to see any benefits from their country’s rising oil production. Oil plays in North Dakota, Texas, and elsewhere around the country may have reversed declining US production, but much of that oil is also ending up on rail cars bound for coastal refineries. Despite huge gains in oil production, the average price of a gallon of gas in the US has set a new record high in each of the last two years.

A new pipeline to the east coast will allow western Canadian producers to pull more oil out of the ground. That has benefits, certainly. Oil companies, in particular, will get a lift. But oil production isn’t the only thing that will go up. So will the cost of filling your tank.

  • jaba2872

    Jeff, I find it baffling that the last few blogs you have posted (on Alberta oil and it’s long term benefits not only to oil companies but to Alberta and Canada) only take and see the short view instead of the long view.

    You come off sounding against Alberta oil sands and it’s benefit to Canada.

    You once had a very good analytical view of Alberta oil and it’s benefit to not just the oil companies and Alberta but for Canada and how we can be a major player in the world. I know you used to say this because I have seen and heard you in interviews. Why the change of position now?

    I read you book “Why your world is about to get a whole lot smaller” I found the read insightful.

    But your tone on Alberta oil industry no longer comes across as analytical or informative. You are sounding anti Alberta oil industry and slightly fear mongering. Yes, I do concede that Alberta oil may not have the affect of lowering prices, but you are not willing to take a longer view of what this may/can do for the country as a whole.

    The potential for economic growth, energy security, long term professional jobs, and the possibilities of not what may happen in 2-5 yrs from now but the securities of 10-30 yrs. from know.

    As I stated before Jeff, you need to come clean on where you stand on the oil industry in Canada and the oil sands. You sound Anti Alberta oil industry but you are now afraid to say it.

    Do you support a sound and yes environmentally responsible oil industry in Canada or do you support what your new friend Suzuki wants and that is to shut down the oil sands?

    Enough dancing on the sidelines Jeff, lets us know where you stand.

  • Zytigon

    Strongly recommend Burt Rutan’s demolition of the claim that CO2 from burning fossil fuels will lead to climate catastrophe ( AGW ) :


    To claim that the entire system of atmospheric temperature moderation has been described by the fluctuations of atmospheric CO2 content while excluding the other obvious factors such as atmospheric water vapour content, solar flux and orbital mechanics is just nonsense.
    The whole point of modelling when done correctly is that it links accurately measured input of the main factors and accurately measure target output. Where you have major input factors that are not considered and poor and uncertain measurement of all factors then all you have is a joke or more seriously Public Fraud based on science.
    You do not have science.
    CO2 is not a pollutant. When the Dinosaurs roamed, the CO2 content was 6 to 9 times current and the planet was green from pole to pole; almost no deserts. If we doubled the atmospheric content of CO2, young pine trees would grow at twice the rate and nearly every crop yield would go up 30 to 40%. We, the animals and all land plant life would be healthier if CO2 content were to increase.
    In my background of 46 years in aerospace flight testing and design I have seen many examples of data presentation fraud. That is what prompted my interest in seeing how the scientists have processed the climate data, presented it and promoted their theories to policy makers and the media.
    What I found shocked me and prompted me to do further research. I researched data presentation fraud in climate science from 1999 to 2010.
    Also see :
    Burt Rutan youtube :

  • rigpigpetey


    well said, the “anti” establishment started when he was blogging about fishing in B.C. with his son. Before that, he was not sure whether to lead with his left foot or right foot, but was adamant about “how the world runs on oil”. (He was “bang on” about that!)

    As for our western coastal province, yes, she’s a beaut out there, but, i am curious how long his trip from GTR to B.C./return trip would be taken by dogsled or horseback or pedal bike,……….maybe not the bike, its made with addition of energy secured from oil resources.

    That lawyer guy from the Sierra Club who got chewed on by the polar bear last week on his trip to the North is probably thinking just how lucky the helicopter runs on gas (made from oil) and not solar,…………. as well as the medical gear,…….yeah, its all made with the edition of oil too.
    (my general consensus is that he “was not thinking”.) Crazy, eh?

    We are all just doing a “job”,………

    Smoke and mirrors we say in downtown cowtown,…..

  • rigpigpetey

    By the way,….

    Of course there will be “no relief” at the gas pumps,….

    Here is reality,……
    When i was a kid, I could fill a jerry can with 5 gallons of gas, buy a pack of smokes and still get change from a 5 dollar bill. Now 47.63 years later?????

    That was THEN, and this is NOW. (good book btw)

    As an “economist” i thought they were good with numbers? Graphs?

    Why are you trying to slow us down,…….Jeff?

    Give us an example of how much oil it requires to process a barrel of bitumen 15 years ago to what we are doing today and then explain why your smarter.

  • EVHappy

    I find it baffling that most Canadians and Americans cannot understand the simple concept Jeff is trying to explain. I mean, not only is it obvious, it has already driven the cost of WTI up to near Brent levels!

    The oil company propaganda machine is strong indeed, that or the world view of the masses just does not want to face the facts of what is going on.

  • EVHappy

    It is because Jeff now understands just how the tar sands are going to bring down the Canadian economy and change it from a manufacturing economy to a raw resource exporting economy. We all know that only a few benefit from that while the increased currency causes manufacturing jobs to be shipped overseas.

    Oh, and I don’t want to even start talking about the environmental damage. I am well aware that humans are going to burn everything, everywhere and destroy everything just to keep BAU.

  • EVHappy

    One only needs to look at the inflation adjusted graphs to still see that Jeff is right on target. The price of oil has been, on average, about $20 / barrel for the past 120 years, ending this Century.

    The price is now five times greater and we humans are forced to dig up bitumen and boil off the oil using massive amounts of NG, fresh water and causing insane amounts of environmental damage.

    Is this sustainable, even in the near term? Answer that and you will understand why Jeff is smarter.

  • rigpigpetey

    that is something we do here everyday,…………

    your 5 times inflation adjusted graphs need to accommodate current world political events with time allotted adjustments regarding who’s blowing who,………….up.

    When oil was first discovered / produced in an “economical” version of our reality in Petrolia Ont, it was not priced at $20 barrel,…………….

    and also,………those first oilwells were “fracced”.

    With age comes a lifetime of experience. Some folks do a pretty good job venting on the negative aspects of our economic engine,………..a good suggestion is to travel around the world and experience a lifetime of “mis-steps” and you’ll be smiling when you get back home and understand the best thing about coming home is being able to “relieve yourself” in “factual comfort”.

    And thats a byproduct of what the world runs on,……

  • EVHappy

    Rig, you did not get a good look at those inflation adjusted graphs. If you did, you would not say what you did. It only takes a few minutes to Google them (use image section).

    Of course the price was not $20 / barrel in the beginning. All new industries go through a process of discovery and invention followed by manufacturing knowledge and economies of scale.

    Remember how expensive mobile phones where in the beginning? How about computing power? What about modern electric cars? Getting your genome sequenced? Etc. Etc.

    Fossil fuels are a non-renewable resource and humans go after the easy, cheap-to-extract stuff first. Why boil tar and drill five miles in deep water if we just poked a hole in the ground for so many decades? Think about that and the energy needed to be invested to get that next, harder-to-get barrel.

  • NN

    A great analysis of cause-and-effect. But if this article was meant to convey an opinion (i.e. “We shouldn’t export oil because higher pump prices are an unstoppable evil”) then you might as well argue that we shouldn’t export ANY goods because that causes the price of those good to go up at home. Maybe Alberta should just stop exporting beef so they can enjoy $10 steaks. Maybe Ontario should stop exporting car parts so they can enjoy cheap spare parts at the auto shop.
    If that’s the opinion of this article, then let’s call it what it is: oil protectionism. And I think most economists agree on the futility (even stupidity) of protectionist policies. And as for everyone arguing that we’re suffering from “Dutch disease”, just ask Ontario’s manufacturing sector what’s actually screwing them: exchange rates, OR fundamental flaws in our one-customer, tied-to-the-US economy manufacturing base?