Optimal multiproduct tolling on an oil pipeline

This thesis is an investigation into the tolling practice of multiproduct oil pipelines in Canada. In particular, it is an investigation of relative tolls to ship different commodities, with specific interest in the surcharge levied on heavy oil shipments. Currently heavy oil pays a surcharge of 22% of the light oil toll. This was calculated by comparing the average costs to ship heavy and light oil in their own pipelines. In order to critique this method a cost function is built from the ground up which suggests that in the long run one pipeline would ship both heavy and light oil. This cost function displays marginal costs for heavy and light oil which are approximately the same at current throughputs. An analysis of efficient (Ramsey) tolls using this cost function suggests that if tolls were efficient, the heavy oil toll would be less than the light oil toll.