Windsor's mayor says the city is monitoring the impact rising oil prices are having on fueling its fleet of vehicles and on millions of dollars in road construction contracts.
Iran closed the Strait of Hormuz due to military action against that country by the U.S. and Israel. Around 20 per cent the world's oil is shipped through the narrow but heavily used waterway, which has resulted in a rapid rise in oil prices.
Mayor Drew Dilkens says there's no doubt that for any business that has vehicles that operate on the road and consume gas, there is going to be a variance in the account with the price of gas the way it is today.
"That will definitely drive a variance in our quarterly budget, and then, of course, on construction projects, big cranes, tractors, and all of that equipment are heavy fuel users as well. There are many contracts with escalation clauses that talk about the price of fuel, and if it goes up, there's an extra surcharge that we must pay to get that construction project done. So we must deal with those escalators as well," he says.
Then there's also the impact on contracts for road construction projects, with the city spending $163.8 million this year for roads alone, with rising gas and material prices impacting the overall expected cost of each project.
Rising oil prices impact key road paving materials such as asphalt cement (AC), a petroleum product that's impacted by the price of oil worldwide.
According to the MTO's AC Price Index, the cost of asphalt cement was $1067.25/tonne in February but rose to $1223.25/tonne in March, a $156 difference.
The last time prices were this high was in May 2022, shortly after Russia invaded Ukraine, which saw the price hit $1270/tonne and reach a high of $1394/tonne in July 2022 before easing off in late 2022 into early 2023.
Dilkens says they like to operate all the projects within budget, but if there's any variance, it will be reported to city council for direction.
"This is just one of those situations that are beyond our control, and in a year when we built the biggest capital budget in the city's history, the vast majority of which goes into roads and sewers, which are equipment-intensive, which means they require a lot of fuel, we're going to see some cost pressures on some of those projects that we're going to have to figure out how to deal with," he says.
Dilkens says they are starting to modernize their fleet with a number of hybrid and electric vehicles, and where appropriate, they will replace them with hybrid and electric vehicles.
"These types of global events help drive those decisions as well when we start doing the return on investment; the math makes a whole lot more sense when you have gas at $1.85 a litre. So, we're going to continue to monitor that; we're going to continue to evolve the fleet because we want to operate efficiently as well," he says.
According to GasBuddy, a litre of regular was selling for an average of $1.83 in Windsor-Essex while diesel was selling for above $2.22 a litre as of April 7.