This is the third article in a series exploring the current energy shock and its implications for infrastructure projects. For additional context, we invite you to read the first two articles:
- “Fuel shortages and price uncertainty: What past oil shocks can teach us about infrastructure contracts today?”
- “Fuel disruption: Can rising fuel prices constitute force majeure in Canadian infrastructure contracts?”
A tightening global fuel market
Recent developments in Europe and North America illustrate growing concern over the security of petroleum supplies. In March 2026, following major disruptions to global oil flows associated with the conflict in the Middle East and the closure of the Strait of Hormuz, the European Commission called on Member States to prepare for a potentially prolonged disruption in the supply of crude oil and refined petroleum products. The European Union coordinated the use of emergency oil stocks and participated in an International Energy Agency (the “IEA”) initiative to release more than 400 million barrels of emergency reserves.1 Canada and the United States also committed to substantial supply-side measures as part of the coordinated response, with Canada committing 23.6 million barrels (through a combination of industry stock drawdowns and demand restraint measures, as Canada does not maintain a government-owned strategic petroleum reserve) and the U.S. committing 172 million barrels from its strategic petroleum reserve.2
The concern is increasingly visible at the market level as well. The issue is not simply whether oil will become more expensive, but whether the right refined product will be available to the right user at the right time. Shell CEO Wael Sawan recently put the issue in practical terms: “Today, what you’re seeing is all the price signals that we are short on diesel and gasoline.”3 For infrastructure projects and other major users of these fuels, this distinction matters. A shortage of diesel or gasoline can have a major impact on infrastructure projects and may even constitute, in some cases, force majeure. If the market cannot ensure that available supplies reach the users who need them most, it may instead become an allocation event, one in which the ordinary operation of private contracts gives way, at least temporarily, to government-directed priorities.
These supply concerns are reflected in sustained price pressures across the fuel market. Prices for gasoline and diesel have remained consistently high throughout 2026, driven by ongoing geopolitical instability, refinery constraints, and persistent demand. The national average for regular gasoline reached US$4.14 per gallon over Labour Day weekend, a record for the holiday, while diesel averaged US$6.37 per gallon this week, up from US$3.71 a year earlier.4 Diesel prices, in particular, have been creeping upward since mid-summer, with the diesel crack spread reaching an all-time high of US$102.20 per barrel in August 2026.5 This trend is especially significant for infrastructure projects and heavy industry, which depend heavily on diesel for construction equipment, generators, and transportation.6
The current price environment is driven in part by a structural shortage of diesel supply. Global refining capacity has struggled to keep pace with demand, particularly for middle distillates like diesel and jet fuel. The world is currently processing roughly 5 million fewer barrels of crude oil per day than it was a year ago, approximately 5% of global refining supply, due to disruptions across three critical regions: the Middle East, where refinery damage from drone strikes, the destruction of a vital pipeline, and the closure of the Strait of Hormuz have curtailed output; Russia, which has banned diesel exports through at least January 2027 after Ukrainian strikes shut down several of its refineries; and China, which sharply curtailed fuel exports to preserve domestic supply.7
European refinery closures in recent years, as many as 30 facilities between 2009 and 2024, with further capacity reductions in 2025, have compounded the problem, while reduced investments in new capacity have left the remaining global system running near its limits.8 In the U.S., refineries are operating at utilization rates of 95% to 97%, with little operational flexibility to increase output, even as distillate inventories have fallen to approximately 107 million barrels, their lowest level for this time of year in three decades.9
The result is a market in which diesel availability, not just price, has become a critical operational variable. Refinery outages, depleted inventories, export restrictions, and disrupted shipping routes are creating a refined-fuel squeeze that persists independently of crude oil price movements.10 For project owners and contractors, this underscores the importance of understanding not only their contractual fuel supply arrangements, but also the regulatory framework that may govern allocation if market mechanisms prove insufficient.
Past experiences show that this is not merely a theoretical possibility. During the September 2000 fuel protests in the United Kingdom, the UK government established a Fuel Task Force and entered into a memorandum of understanding with oil companies, trade unions, carriers, and law enforcement under a voluntary, non-statutory framework. The resulting arrangements contemplated directing fuel supplies to designated filling stations and giving priority to “essential users.”11 During the refinery strikes in France in 2022, authorities likewise released strategic fuel reserves, restricted the sale of fuel in portable containers in several regions, and, through localized orders in certain departments, reserved designated fuel stations for essential professionals, including health and emergency workers.12
Who gets fuel first in a Canadian energy emergency?
A hospital, a remote community, a public transit operator, a mine, and a major infrastructure project may all depend on the same limited pool of diesel. Each may have a firm supply agreement. Each may also consider its operations essential. Yet, in a sufficiently serious national emergency, the decisive instrument may be a federal allocation order—not the contract or distribution agreement.
Canada already has legislation designed for that situation. The Energy Supplies Emergency Act, R.S.C., 1985, c. E-9 (the “Act”) provides a means of conserving energy supplies during a national emergency caused by actual or anticipated shortages or by petroleum-market disturbances affecting Canada's national security, welfare, and economic stability.13 If triggered, the Act can support a mandatory allocation program at the wholesale level and, if wholesale allocation is insufficient, rationing extending to final consumers or users.14
Canada’s approach stands apart from most other IEA members. As a net oil exporter, Canada does not require importers or producers to maintain minimum oil stocks, nor does it operate a central stockholding entity or a strategic petroleum reserve like the one maintained by the U.S. Instead, the Act establishes the Energy Supplies Allocation Board (the “Board”), a body responsible for preparing contingency plans for petroleum supply emergencies and, if the statutory regime is activated, for administering Canada’s mandatory allocation or rationing framework.15
For parties entering into fuel-supply contracts, the possibility of such an “allocation event” therefore raises an important question: what happens to contracts and obligations when market-based distribution is no longer sufficient to ensure continuity of supply?
This article considers the circumstances in which the Act may be triggered, the scope of the federal government’s allocation and rationing powers, and the potential effect of those powers on existing contractual commitments.
Key takeaways
- A shortage or disturbance in the market does not automatically rewrite contracts. A federal emergency order, an approved allocation program, and implementing measures are required.16
- Existing contracts may be displaced in two ways: regulations may expressly modify or revoke existing supply contracts where necessary to make the allocation effective; separately, where compliance with a regulation would require a party to act contrary to its contract, the contract is modified by operation of law only to the extent necessary to permit compliance.17
- No project receives automatic priority. Labelling a project "critical infrastructure" does not create a statutory entitlement to fuel under an allocation program. Priorities are set by the Board based on the nature of the emergency, not predetermined by the Act.
- Parties should act now: understand the limits of contractual assurances, review force majeure and change-in-law provisions against the Act’s framework, and document fuel requirements, essential functions, and available alternatives to support internal planning and, if allocation ever occurs, a priority or hardship request before the Board.
1. A specialized federal emergency regime
1.1 Circumstances triggering operation of the emergency response system
The Act operates independently of the more familiar Emergencies Act; it has its own activation mechanism. While the Emergencies Act (S.C. 1988, c. 29) could theoretically also be invoked in response to a severe petroleum supply disruption under its public welfare or international emergency provisions, the E.S.E.A. provides the specialized statutory framework tailored to petroleum emergencies and would likely be the primary instrument deployed in such a scenario. Under Section 15, the Governor in Council may declare a national emergency when actual or anticipated petroleum shortages, or disturbances in petroleum markets, affect or threaten to affect Canada's national security, welfare, or economic stability, and when conserving petroleum products is required in the national interest.
The threshold is significant, but the Act is deliberately forward-looking. Ottawa does not have to wait until every supplier has exhausted, or is on the verge of exhausting, its inventory. An anticipated shortage may be enough. That said, commercial volatility alone does not override contractual rights: the Governor in Council must first issue a statutory emergency order before any mandatory allocation program can be established.18 The order takes effect immediately, but a confirming motion must be brought before each House of Parliament through the Act's expedited process.19 Provincial governments must also be consulted to the extent practicable in the circumstances.20
1.2 Mechanisms to address emergency
1.2.1 Allocation program
Once the emergency order is made, the Board must move quickly. Its first task is to prepare a mandatory allocation program designed to ensure that petroleum products are distributed nationally and equitably from suppliers to wholesale customers. The program must identify:
- the regions in which it will operate;
- the petroleum products subject to control;
- the priorities of use or supply, or both; and
- the system through which available supplies will be allocated.21
Before the program can take effect, it requires approval from the Governor in Council.22 From there, it can evolve as the emergency unfolds: its geographic scope may be expanded or narrowed, products may be added or removed, and priorities may be adjusted.23
That flexibility extends to the products themselves. An allocation program is not necessarily limited to gasoline and diesel; the Governor in Council may bring any product manufactured wholly or partly from petroleum within the regime’s scope.24
The Act can reach even further. The Board may enter into arrangements with provincial authorities to coordinate the allocation and pricing of alternative fuels or electricity, where doing so would help reduce overall petroleum demand.25
Despite this broad potential scope, the allocation program is designed to be exceptional and temporary. Unless terminated earlier, a program expires after 11 months.26 It can be extended, but no single extension may exceed 12 months.27
1.2.1.1 Regulations
The Act also gives the federal government broad regulatory tools to make a mandatory allocation program effective. With the approval of the Governor in Council, the Board may make regulations governing how available supplies are determined and apportioned among wholesale customers, assigning particular suppliers to particular customers and specifying the extent of their supply obligations. The regulatory authority extends to the accumulation, storage, and disposal of inventories, information and record-keeping requirements, restrictions on wasteful or non-essential uses, product quality, and the transfer of supplies or customers between suppliers.
The Board may also regulate prices charged by suppliers to wholesale customers, transportation charges between market areas, credit terms and payment schedules, and the withholding or reduction of supplies where an order under the allocation regime has not been complied with.28
The Act's reach also extends beyond the domestic distribution of controlled products. Where the Governor in Council considers it expedient, it may order the Board to regulate the importation or export of any controlled product, either indefinitely or for a specified period. In the case of imports, regulations may govern the quantities and qualities of controlled products entering Canada, their storage in market areas, and other matters necessary to support the mandatory allocation program.29 Export regulations may similarly control the quantities and qualities of controlled products leaving Canada.30
1.2.2 Consumer rationing
At first, the Act operates at the wholesale level; it regulates suppliers and their large customers, not the fuel available to individual consumers.
Consumer rationing comes next, but only if wholesale allocation is not enough. Where supplies are, or are likely to become, so scarce that wholesale measures alone would fail, the Governor in Council may convert the program into a rationing regime that applies at any or all levels, including final consumers.31 Regulations may then create consumer and use categories, establish priorities, prohibit or limit lower-priority consumption, and require coupons, permits, or other documentary authorization.32
1.2.3 Ancillary emergency powers
The Board also has tools to address transportation constraints that could otherwise impede the distribution of controlled products. It may direct the Canadian Transportation Agency to require railway cars, motive power, railway lines, and facilities to be allotted, moved, used, or shared for emergency purposes.33 It may direct the Commission of the Canadian Energy Regulator to require the provision of additional pipeline facilities, divert gas or oil to a local distributor, or require branch pipelines to be constructed or extended to reach specific communities or large-volume users.34 These powers can apply even where diverting pipeline supplies would impair service to existing customers, though the Act imposes consultation requirements and other safeguards in those circumstances.35 Ships and extra-provincial trucking may also be brought into service where necessary to support the movement of controlled products.36
Environmental rules may also bend in an emergency. The Board may, when necessary to preserve available supplies of oil products and after consulting various authorities, relax provisions of law governing or prohibiting the discharge of sulphur compounds.37
1.3 Monitoring and enforcement of emergency regime
Canada’s emergency regime combines domestic enforcement with international coordination.
Domestically, the Act does not impose a standing reporting regime on parties to fuel-supply contracts. But once the regime is activated, the Board may require information and records as necessary to administer an allocation or rationing program. Compliance is backed by both criminal sanctions and judicial remedies.38
Internationally, the emergency framework operates within Canada’s commitments as a member of the IEA. Canada is bound by the agreement on an International Energy Programme (the “IEP”), which includes obligations to report on emergency measures to the IEA Secretariat. Because Canada is a net oil exporter, it is not subject to the IEA’s minimum 90-day stockholding requirement; that obligation applies only to members on the basis of net oil imports. Still, the IEA monitors compliance with the IEP, adding a layer of international oversight and coordination during major supply disruptions.39
Importantly, the Act is designed to operate before an emergency occurs. Even when no mandatory allocation or rationing program is in effect, the Board must prepare, review, and maintain contingency plans. It must also continuously study and monitor matters relevant to the international petroleum supply situation and report to the Minister of Natural Resources with recommendations aimed at ensuring that Canada is prepared to respond to a petroleum supply emergency with timely and effective measures.40
2. Who gets fuel first?
The Act does not prescribe a fixed priority list; it does not say that hospitals always come before utilities, that utilities always precede freight transportation, or that public infrastructure always ranks ahead of private industry. Instead, priorities must be established by the emergency program itself and ultimately by the Board and its priorities.41
This distinction matters. Calling a project “critical infrastructure” does not create a statutory priority or ensure a supply of diesel. Furthermore, a public owner does not automatically rank above a private operator. A contractual promise of "priority supply" binds the parties in their private relationship, but it does not bind the Board when it sets a national allocation hierarchy.
What might a priority program look like? Depending on the nature of the emergency, it could prioritize health and safety, residential heating, food production, utilities, emergency services, essential services, defence, remote communities, public transportation, waste management, or essential freight. It could distinguish between regions experiencing different degrees of scarcity, or between minimum operational requirements and ordinary commercial consumption. These are policy choices made under statutory authority, not priorities predetermined by the Act’s text.
For infrastructure projects and stakeholders, the practical goal is to demonstrate the consequences of non-supply. A credible request for priority or hardship relief requires more than political importance; it requires evidence of minimum fuel requirements, consequences of interruption, geographic constraints, available inventories, the feasibility of alternatives, and the effect of shutdown on the facility or surrounding infrastructure.
The Board's regulation-making authority includes measures to address hardship caused by special circumstances. It also allows for customer transfers while seeking, where practicable, to preserve suppliers' existing market positions. An existing supplier relationship may support a customer’s case, but it remains subject to whatever priorities and allocation methodology the emergency program adopts.
Consider a contractor building a water-treatment facility in a remote region of Québec. Its diesel is required at all steps of construction, for excavation, generators, transportation, and temporary heating. The project may have major public value, but a priority decision could distinguish between fuel needed to keep an existing water system operational and fuel needed to accelerate construction of its replacement. This decision would be made by the Board upon analysis of the requests received and where the diesel is most needed.
3. How can the Act alter a fuel-supply contract?
The Act provides two closely related ways to alter existing contracts.
3.1 The first method: Express regulatory power
Section 25 authorizes regulations that modify or revoke existing contracts for the supply of a controlled product, where doing so is necessary to make the allocation effective. The regulations may specify which types of contracts are affected and under what circumstances.
This power reaches the heart of commercial terms. An emergency regime could reduce quantities, reassign customers, replace suppliers, regulate prices, or require fuel to be transferred into a pooling arrangement.
3.2 The second method: Modification of the contract by operation of law
Section 31 provides that where a regulation requires a person to do, or refrain from doing, something contrary to a contract, the contract is modified to the extent necessary to permit compliance.
The phrase "to the extent necessary" is important. It supports targeted modification, not automatic cancellation of every affected agreement. As an example, if an order reduces monthly deliveries by 30%, the rest of the contract may survive, unless the regulation or the contract itself produces a different result. Price, payment, quality, notice, audit, and future-delivery obligations may continue even though the quantity obligation has been modified.
There is a limit: the automatic modification rule does not apply where a non-price change would impose a contract fundamentally different from what the parties originally agreed to. Price is treated separately; the statutory text does not allow parties to resist a regulated price simply because the economic bargain has shifted. But where the non-price exception applies, Section 31 does not spell out every consequence. The parties would still need to determine the status of the agreement under its remaining provisions and applicable law.
It must also be mentioned that Section 32 entitles anyone suffering “deprivation of property” under the Act to reasonable compensation, with appeals to a Federal Court assessor. This does not cover lost profits, contractual penalties, or other economic losses. Section 31 also provides a defence in court actions for breach arising from delay or failure to deliver a product or service under an existing contract. The key condition: the delay or failure must have been caused solely by compliance with a regulation under the Act or an order made under the statutory regime.42
What infrastructure projects and stakeholders should do now
The Act may never be triggered. But the legal and practical questions it raises are worth addressing now, whether or not the statutory regime is ever activated.
-
Understand the limits of contractual assurances.
A promise of “firm supply” or “priority delivery” binds the parties, but it cannot override a federal allocation order. Parties should understand what fuel-supply contracts can realistically guarantee and distinguish between commercial difficulty, operational shortage, and regulatory intervention.
-
Review existing relief provisions.
Force majeure clauses and change-in-law provisions were likely drafted without the Act’s sole-causation standard in mind. The statutory defense applies only where delay or failure was caused solely by compliance with the Act. Parties should assess whether existing agreements would function coherently if the regime were triggered.
-
Document project requirements now.
Defensible data on fuel requirements, essential functions, inventories, and substitutes supports internal planning, strengthens existing contractual claims, and, if allocation ever occurs, may support a priority or hardship request before the Board.
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Plan for operational resilience.
Contracts are only part of the answer. Parties should consider how disruptions would flow through the project structure, whether alternative fuels are feasible, and how operations would function during a sustained period of constrained supply. Financial resilience and contingency planning matter as much as contractual protection.
Conclusion
For most infrastructure projects, the Energy Supplies Emergency Act will remain in the background, a statutory framework that never directly touches day-to-day operations. The Act has never been triggered, and the Board has never been called upon to administer a mandatory allocation program. This is notable given that Canada has weathered several significant petroleum market disruptions since the Act was consolidated in 1985, including the 1990–91 Gulf War, the 2008 oil price spike, and the 2020 pandemic-related supply disruptions, none of which were deemed to meet the statutory threshold for activation.
For decades, petroleum markets have functioned well enough that private contracts, commercial relationships, and market pricing have determined who receives fuel and on what terms.
But the current environment has made that assumption harder to sustain. Global supply chains are under severe pressure from geopolitical instability, refinery constraints, and shifting trade flows. Refined product markets, particularly for diesel, are tight, with prices signaling structural shortages rather than temporary volatility. Governments around the world have shown, in recent years, that they are willing to intervene when markets cannot deliver fuel to those who need it most. The coordinated IEA release of strategic reserves, the emergency measures adopted in France and the United Kingdom, and Canada’s own commitments during the 2026 crisis all demonstrate that public allocation is not merely a theoretical possibility.
If the Act is ever triggered, the consequences will be immediate and practical. A contract that seemed complete may be overridden by regulation. A supplier that seemed reliable may be redirected to serve another customer deemed more essential. A priority that seemed obvious, because the project is large, publicly funded, or politically important, may not survive the Board’s allocation decisions.
And a party that assumed it would be first in line may find itself waiting behind users it never anticipated: hospitals, remote communities, public transit systems, or heating providers serving vulnerable populations.
The legal issues raised by the Act are not confined to the moment of activation. They are present now, in the negotiation of fuel-supply contracts, in the drafting of force majeure and change-in-law clauses, in the allocation of risk across project structures, and in the planning assumptions that underpin major infrastructure investments.
Parties that understand the statutory framework are better positioned to negotiate realistic contractual assurances, review existing agreements for gaps and mismatches, build the evidentiary record that may support a priority request, and plan for operational resilience during a sustained period of constrained supply.
The time to address these risks is before they materialize. Contracts can be structured to anticipate a regulatory-allocation event, to match relief provisions to the Act’s sole-causation standard, and to allocate the consequences of government intervention in a way that reflects the parties’ actual expectations. Operational planning can account for the possibility that fuel may not be available when needed, or that it may be redirected to other users by law. The question is not whether the Act will be triggered for any particular project. The question is whether, if it is, the parties will be ready.
Read the original article on GowlingWLG.com
Footnotes
1 European Commission, Directorate-General for Energy, “Commission calls on EU countries to coordinate measures to ensure oil security of supply amid Middle East energy disruption” (March 31, 2026); International Energy Agency, “IEA collective action delivers more than 400 million barrels of oil to markets” (March 11, 2026).
2 Natural Resources Canada, “Statement from the Minister of Energy and Natural Resources” (March 13, 2026), Government of Canada; United States, Department of Energy, “United States to Release 172 Million Barrels of Oil From the Strategic Petroleum Reserve” (March 11, 2026).
3 Mwangi Enos, “Shell CEO’s Blunt Message as Gas and Diesel Face New Squeeze” (July 31, 2026), TheStreet, via Yahoo Finance.
4 American Automobile Association, “Labor Day On Track to Set Record at the Pump” (September 3, 2026), AAA Fuel Prices; U.S. Energy Information Administration, “Gasoline and Diesel Fuel Update” (September 9, 2026).
5 Reuters, “US diesel crack surpasses $100 a barrel for the first time on supply disruptions” (August 17, 2026).
6 American Petroleum Institute, “Inside the Global Squeeze on Diesel” (August 26, 2026).
7 American Petroleum Institute, supra note 6; International Energy Agency, “Oil Market Report – August 2026” (August 12, 2026); U.S. Energy Information Administration, supra note 4; Reuters, “Russia bans diesel exports to increase domestic supply, says deputy PM” (July 8, 2026); Reuters, “China curtailing, not banning, fuel exports, shipping data shows” (April 20, 2026).
8 Argus Media, “Viewpoint: Europe’s refiners eye support from closures” (December 23, 2024); American Petroleum Institute, supra note 6.
9 American Petroleum Institute, supra note 6; Reuters, “Diesel prices surge as global supply tightens” (August 10, 2026); Reuters, supra note 5.
10 Reuters, “Global diesel supply to stay tight through winter, industry execs say” (September 8, 2026).
11 UK, HC Deb, November 2, 2000, vol 356, cols 875–76; UK, Office of Fair Trading, Memorandum of Understanding on the Supply of Oil Fuels in an Emergency (2002).
12 Ministère de la Transition écologique, “Situation des carburants” (October 10, 2022), Gouvernement de la République française; Préfecture de l’Orne, “Interdiction de vente de carburant sous forme conditionnée” (October 11, 2022), Gouvernement de la République française; Reuters, “French refinery strikes continue at four sites” (October 5, 2022); Caroline Quevrain, “Pénurie de carburants : quelles sont les professions prioritaires ?” (October 10, 2022), TF1 info.
13Energy Supplies Emergency Act, R.S.C., 1985, c. E-9 (hereinafter “E.S.E.A.”), section 15 (1).
14 Sections 19 (1) and 29 (1), E.S.E.A.
15 International Energy Agency, “Canada’s legislation on oil security” (July 31, 2020).
16 Sections 15 (1), 19 (1), 19 (3), 25 (1) and 31 (1), E.S.E.A.
17 Sections 25 (1) (b), 25 (1)(c), 25(1) (i), 25 (1) (l), 31(1) and 31(2), E.S.E.A.
18 Section 15 (1), E.S.E.A.
19 Sections 15 (2), 46 (1) and 46 (2), E.S.E.A.
20 Section 45 (1), E.S.E.A.
21 Section 19 (1) and (2), E.S.E.A.
22 Section 48 (1), E.S.E.A.
23 Section 20 (1), E.S.E.A.
24 Sections 20 (1) and 22, E.S.E.A.
25 Sections 23 and 24, E.S.E.A.
26 Section 44 (1), E.S.E.A.
27 Section 44 (3), E.S.E.A.
28 Section 25 (1), E.S.E.A.
29 Section 26, E.S.E.A.
30 Section 27, E.S.E.A.
31 Section 29 (1), E.S.E.A.
32 Section 30, E.S.E.A.
33 Section 35, E.S.E.A.
34 Section 36 (2), E.S.E.A.
35 Sections 36 (2) (b) and 36 (4), E.S.E.A.
36 Section 38, E.S.E.A.
37 Section 34 (1), E.S.E.A.
38 Sections 41 and 42, E.S.E.A.; International Energy Agency, “Canada’s legislation on Oil Security” (July 31, 2020).
39 International Energy Agency, supra note 15.
40 Section 11 (1) and (2), E.S.E.A.
41 Section 19, E.S.E.A.
42 Section 32 and 32.1 E.S.E.A
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