IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v41y2020i1p241-258.html
   My bibliography  Save this article

Pipeline Capacity Rationing and Crude Oil Price Differentials: The Case of Western Canada

Author

Listed:
  • W.D. Walls
  • Xiaoli Zheng

Abstract

This paper examines the impact of pipeline capacity constraints on the discount of Canadian oil prices relative to U.S. benchmark oil prices. Using a panel of monthly data for Canadian oil exporting pipelines, we estimate that price differentials between U.S. markets and Western Canada would increase by 3.6% for 1% increase in pipeline capacity constraints. Pipeline capacity constraints in Canada have resulted in an average loss of $5.53 for every barrel of crude oil exported to the U.S. between 2009 and 2017. In 2015 and 2016, the losses due to insufficient pipeline capacity were equivalent to 3%-5% of the Canadian oil and gas industry’s sales revenue and 69%-102% of its royalty payments to provincial governments. Western Canadian oil refiners and refined products’ consumers benefit from the depressed crude oil prices. However, the total gains captured by local refiners and consumers are much smaller than the losses of the upstream sector.

Suggested Citation

  • W.D. Walls & Xiaoli Zheng, 2020. "Pipeline Capacity Rationing and Crude Oil Price Differentials: The Case of Western Canada," The Energy Journal, , vol. 41(1), pages 241-258, January.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:1:p:241-258
    DOI: 10.5547/01956574.41.1.wwal
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.41.1.wwal
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.41.1.wwal?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arthur De Vany & W. David Walls, 1993. "Pipeline Access and Market Integration in the Natural Gas Industry: Evidence from Cointegration Tests," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-20.
    2. Mark Agerton and Gregory B. Upton Jr., 2019. "Decomposing Crude Price Differentials: Domestic Shipping Constraints or the Crude Oil Export Ban?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    3. Severin Borenstein & Ryan Kellogg, 2014. "The Incidence of an Oil Glut: Who Benefits from Cheap Crude Oil in the Midwest?," The Energy Journal, , vol. 35(1), pages 15-34, January.
    4. Karen Clay & Akshaya Jha & Nicholas Muller & Randall Walsh, 2019. "External Costs of Transporting Petroleum Products: Evidence from Shipments of Crude Oil from North Dakota by Pipelines and Rail," The Energy Journal, , vol. 40(1), pages 55-72, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. G. Kent Fellows, 2022. "Pipes, Trains and Automobiles: Explaining British Columbia’s High Wholesale Gasoline Prices," The Energy Journal, , vol. 43(5), pages 139-160, September.
    2. Walls, W.D. & Zheng, Xiaoli, 2021. "Environmental regulation and safety outcomes: Evidence from energy pipelines in Canada," Resource and Energy Economics, Elsevier, vol. 64(C).
    3. Libo Xu, 2024. "On the WTI-WCS Oil Price Differential," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 52(2), pages 67-77, September.
    4. Brandon Schaufele & Jennifer Winter, 2023. "Production Controls in Heavy Oil and Bitumen Markets: Surplus Transfer Due to Alberta’s Curtailment Policy," Energies, MDPI, vol. 16(3), pages 1-24, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luong, Phat V., 2023. "Crude oil pipeline constraints: A tale of two shales," Resources Policy, Elsevier, vol. 80(C).
    2. Phat V. Luong, Bruce Mizrach, and Yoichi Otsubo, 2019. "Location Basis Differentials in Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    3. Jennifer Rushlow & Paul Bauer, 2021. "How the Removal of a Market Barrier Enhanced Market Efficiency: The Case of WTI and Brent Crude Oil Prices," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 49(1), pages 87-96, March.
    4. Ioannis Chatziantoniou & David Gabauer & Rangan Gupta, 2021. "Integration and Risk Transmission in the Market for Crude Oil: A Time-Varying Parameter Frequency Connectedness Approach," Working Papers 202147, University of Pretoria, Department of Economics.
    5. G. Kent Fellows, 2022. "Pipes, Trains and Automobiles: Explaining British Columbia’s High Wholesale Gasoline Prices," The Energy Journal, , vol. 43(5), pages 139-160, September.
    6. Ruble, Isabella & Powell, John, 2021. "The Brent-WTI spread revisited: A novel approach," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    7. Michael Plante & Grant Strickler, 2021. "Closer to One Great Pool? Evidence from Structural Breaks inOil Price Differentials," The Energy Journal, , vol. 42(2), pages 1-30, March.
    8. Chatziantoniou, Ioannis & Gabauer, David & Gupta, Rangan, 2023. "Integration and risk transmission in the market for crude oil: New evidence from a time-varying parameter frequency connectedness approach," Resources Policy, Elsevier, vol. 84(C).
    9. Marie-Hélène Gagnon & Gabriel J. Power, 2020. "International Oil Market Risk Anticipations and the Cushing Bottleneck: Option-implied Evidence," The Energy Journal, , vol. 41(6), pages 255-280, November.
    10. Raymond Li, Roselyne Joyeux, and Ronald D. Ripple, 2014. "International Natural Gas market Integration," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    11. Dukhanina, Ekaterina & Massol, Olivier & Lévêque, François, 2019. "Policy measures targeting a more integrated gas market: Impact of a merger of two trading zones on prices and arbitrage activity in France," Energy Policy, Elsevier, vol. 132(C), pages 583-593.
    12. Bastianin, Andrea & Galeotti, Marzio & Manera, Matteo, 2014. "Forecasting the oil–gasoline price relationship: Do asymmetries help?," Energy Economics, Elsevier, vol. 46(S1), pages 44-56.
    13. Nida Cakir Melek & Michael Plante & Mine Yucel, 2021. "Resource Booms and the Macroeconomy: The Case of U.S. Shale Oil," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 307-332, October.
    14. Reinhard Ellwanger & Hinnerk Gnutzmann & Piotr Śpiewanowski, 2025. "Cost Pass‐Through in Commodity Markets With Capacity Constraints and International Linkages," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(2), pages 149-163, March.
    15. Arthur De Vany & W. David Walls, 1994. "Open Access And The Emergence Of A Competitive Natural Gas Market," Contemporary Economic Policy, Western Economic Association International, vol. 12(2), pages 77-96, April.
    16. Zeina Alsalman, 2023. "Oil price shocks and US unemployment: evidence from disentangling the duration of unemployment spells in the labor market," Empirical Economics, Springer, vol. 65(1), pages 479-511, July.
    17. Langer, Lissy & Huppmann, Daniel & Holz, Franziska, 2016. "Lifting the US crude oil export ban: A numerical partial equilibrium analysis," Energy Policy, Elsevier, vol. 97(C), pages 258-266.
    18. Amina Baba & Sana Ben Kebaier & Anna Creti, 2024. "How efficient are natural gas markets in practice? A wavelet-based approach," Annals of Operations Research, Springer, vol. 334(1), pages 623-677, March.
    19. Davood Manzoor & Sajjad Seiflou, 2011. "Are crude Oil, Gas and Coal Prices Cointegrated?," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 16(1), pages 29-51, winter.
    20. Ghassan, Hassan Belkacem & AlHajhoj, Hassan Rafdan, 2016. "Long run dynamic volatilities between OPEC and non-OPEC crude oil prices," Applied Energy, Elsevier, vol. 169(C), pages 384-394.

    More about this item

    Keywords

    Pipeline Capacity Constraints; Crude Oil Price Differentials;

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:41:y:2020:i:1:p:241-258. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.