Drivers in Metro Vancouver are reeling from record-high gas prices and many commentators are blaming taxes.
Now, Alberta’s premier-elect Jason Kenney is threatening to “turn off the taps” to push prices even higher because, it is alleged, B.C. is causing Alberta to lose billions of dollars in oil revenues by opposing the Trans Mountain Pipeline expansion.
But there is something important missing from this conversation: Alberta’s oil industry is already making huge excess profits at the expense of Vancouver drivers. It’s not taxes causing current pain at the pump, but industry gouging.
Let’s roll back the clock a few years. In April 2016, gas prices in Vancouver were $1.15 per litre compared to over $1.70 per litre today. That’s a 55-cent per-litre increase in a few short years.
Of that price hike, 6.3 cents per litre is from tax increases. B.C.’s carbon tax increased 1.2 cents per litre on April 1 in both 2018 and 2019. Just under four cents per litre is from the federal Goods and Services Tax, which is levied on the overall pump price.
The other 49 cents of the 55 cent per litre price increase is from non-tax (or market) factors, which include the price of crude oil, the margin (or mark-up) taken by refineries, and the margin taken by gas retailers.
The price of crude oil embedded in gas prices is responsible for just over 28 cents of the total price increase. This price hike hits drivers in Calgary the same as in Vancouver, but it is pure profit for oil producers whose production costs have not changed.
Alberta crude oil is processed by refineries into transportation fuels like gasoline and diesel. The existing Trans Mountain Pipeline transports crude to the Parkland refinery in Burnaby and also transports refined product from three Edmonton refineries owned by Shell, Imperial Oil and Suncor.
Since April 2016, more than 18 cents of the higher per-litre cost of gas comes from increased refining margins. That is triple the amount from tax increases over the same period.
Another way of looking at this exercise of market power is to look at other cities. Recent data show that refining margins in Toronto and Calgary have ranged from 18 to 32 cents per litre in recent weeks. But the refining margin for Vancouver gas was almost 55 cents in mid-April, much higher than historically. A decade ago, Vancouver refining margins were under 20 cents per litre.
A final but small contributor to higher prices is the margin taken by retailers (gas stations), which has increased 2.6 cents per litre since 2016. These retailers are often extensions of the same companies doing the refining, through outright ownership or long-term supply contracts.
The market power of refineries is the most notable factor in Vancouver’s sky-high gas prices. Pretty much any excuse like routine maintenance or bad weather leads immediately to higher prices at the pump.
Companies are charging higher prices because they can get away with it. Gouging behaviour began in earnest when crude oil prices fell 68 per cent between the first quarters of 2014 and 2016. The full price at the pump dropped only 18 per cent, however, as refiners stepped in to take greater profits.
The Burnaby refinery is a case in point. Calgary-based Parkland Fuel bought the refinery from Chevron in October 2017. Their most recent annual report shows the company boosted its profits by $400 million in 2018 thanks to the refinery.
The bottom line: Vancouver drivers are paying 20 to 30 cents more per litre to refiners. This translates into an extra $500 million to $750 million per year flowing from Vancouver drivers to “Big Oil” for gasoline (not including diesel). A 2018 study by Navius Research estimated that excess profits to refiners cost consumers $2.4 billion between 2015 and 2017 for both gasoline and diesel.
In this sense, Kenney’s threat to turn off the taps is just political theatre. Doing so would eat into the excess profits being made by Alberta-based companies.
B.C.’s next move should be to regulate gas prices to put a lid on gouging behaviour. We could take a page from the Maritime provinces, all of which regulate the maximum price of gasoline at the pump. April gas prices (excluding taxes) in Halifax were about 30 cents per litre cheaper than Vancouver.
The B.C. Utilities Commission already regulates electricity and natural gas prices and its mandate should be extended to gasoline and diesel. Even the synchronized weekly up-and-down swings of gas prices in Metro Vancouver could be tamed by a more regulated market.
Some politicians have suggested that B.C. should cut its fuel and carbon taxes to alleviate pain at the pump. But if we were to cut taxes, this would only reward the egregious profiteering of “Big Oil”. It would amount to a transfer of income from the public sector to the oil industry.
In the short-term, it’s worth considering some relief for low-income households. With the high cost of housing, more people are forced out of Vancouver and more-convenient transit corridors to car-dependent areas. A good model is B.C.’s low-income carbon credit funded from the carbon tax. Increasing this amount would directly benefit low-income households and address the regressive price increases we are seeing.
There is no supply shortage of gasoline in Metro Vancouver. No vehicles have been turned away from a station because it ran out of gas. The demand for gasoline in Vancouver is very stable and predictable and storage tanks exist to manage inventories of fuel.
It should not be too difficult for these companies to supply fuel at comparable prices to other parts of Canada, as they have historically. And if they will not, the B.C. government should step in to regulate the market.
Marc Lee is a senior economist with the Canadian Centre for Policy Alternatives.
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