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B.C. gasoline prices rose with land costs but full differentials unexplained: report

Filling Gas Tank_Sm_070218Gasoline prices in British Columbia have risen in line with land costs and credit card processing fees but that doesn’t fully explain why they’re so much higher than in other parts of Western Canada, a new report says.

The report by Deetkten Group was posted online last week by the B.C. Utilities Commission, which is overseeing a public inquiry into sky-high gas prices in the province.

The consultant’s report says Vancouver’s gasoline retail margins, which are the difference between the wholesale price for fuel and the retail price less tax, “highly” correlates with local land values.

It also says credit card processing fees are applied as a percentage of a total transaction, meaning the fees will be higher in jurisdictions like Vancouver where prices at the pump are already high.

“Rising land costs and credit card processing fees may account for nearly the entire differential observed between Vancouver and comparable areas, at least up to the end of 2018,” the report says.

But even after those factors are taken into account for this year, 1.4 cents per litre in the retail margins remains unexplained.

The report also can’t fully explain why wholesale gas prices are much higher in B.C. cities compared with other jurisdictions.

The consultants compared wholesale prices in Vancouver and Kamloops with Edmonton and Seattle, which are also sources of supply for B.C.

Transportation and regulatory costs may account for higher wholesale gas prices in B.C., but even estimating those costs at their highest potential doesn’t explain the difference, it says.

“Even the highest estimates of transport and regulatory costs combined do not sufficiently account for the differential in wholesale prices between the Vancouver market and the Edmonton and Seattle markets, particularly in 2019,” the report says.

A differential of about five cents per litre between Vancouver and Edmonton this year is unaccounted for in the report.

Unlike gasoline prices, diesel prices have remained largely consistent with historical trends when compared with other parts of Western Canada.

“This may be in part due to different demand dynamics in the diesel market,” it says.

Premier John Horgan ordered the inquiry in mid-May as the price of a litre of regular gasoline climbed above $1.70.

In commissioning the probe, he said that gas and diesel price increases were “alarming, increasingly out of line with the rest of Canada, and people in B.C. deserve answers.”

Four days of oral submissions are in the process this week and the three-member panel can question industry representatives, including gas and diesel suppliers.


Most fuel suppliers won’t release profit margin details to B.C. gas price probe

Most gas suppliers in British Columbia are refusing to share how they set prices at the pump just days before hearings on the issue are set to begin at a public inquiry.

The B.C. Utilities Commission has been ordered to review the last four years of gas and diesel pricing in the province and asked suppliers to complete a questionnaire about various business aspects including their profit margins.

Commission CEO David Morton said the inquiry panel is working to determine if it needs the financial information and to assure the companies that it won’t release confidential information.

“I don’t think there’s any cause for alarm,” Morton said in an interview last week.

The suppliers range from Shell and Imperial to Suncor, Husky, Super Save and 7-11, but documents submitted to the commission show that only 7-11 has responded with details about how it sets the price per litre at the pumps.

It has requested the information not be released publicly and the utilities commission has complied, posting a redacted version of 7-11’s questionnaire response on its website.

The other suppliers offered almost identical reasons for withholding profit margin data, with Husky’s submission citing “commercially sensitive information” that is “not shared publicly or between refiners.”

As the price of a litre of regular gasoline climbed above $1.70 in mid-May, Premier John Horgan ordered the probe, saying that gas and diesel price increases were “alarming, increasingly out of line with the rest of Canada, and people in B.C. deserve answers.”

The inquiry timetable calls for the release of the second phase of the utilities commission consultant report today, followed by up to four days of oral submissions, where panel members can question industry representatives, including gas and diesel suppliers.

Bruce Ralston, minister of jobs, trade and technology, said in a statement that he’s disappointed with the companies that refused to provide the information and urged them to co-operate.

“People deserve to know why the price of gasoline in B.C. has seen such wild swings,” Ralston said.

But Morton said he’s not surprised that most of the companies withheld the information.

The utilities commission has established procedures for dealing with confidential information, including commercial information around prices that would harm the company if released, but it typically works with gas and electric utilities.

“Many of the participants aren’t as familiar with our approach to confidentiality so we understand there may be some apprehension around it,” Morton said.

If the organizations can show they would experience harm because a competitive price became public, then the utilities commission would typically honour that, he said.

“If there’s information critical to the inquiry of that nature, then the panel would review that information and we would make a decision but we wouldn’t make a reference to any of those numbers in the decision.”

The commission generally tries to avoid confidential information in its proceedings because it means decisions may have to be redacted, which it doesn’t consider to be “the best outcome,” Morton said.

Morton, who is on the inquiry panel, said they are in the process of reviewing the submissions and may determine that they don’t actually need specific numbers to answer the inquiry’s questions of why B.C.’s gas prices are different from the rest of the country and why the prices swing.

If the panel determines the figures are vital to the inquiry, and the companies still refuse to share them, the commission can apply through the B.C.Supreme Court for access.

That would set back the inquiry’s timeline but it remains on schedule so far, Morton said.

When the commission unveiled the process for the inquiry in May, the utilities commission said it would explore factors potentially affecting prices in B.C. since 2015, including competition and the amount of fuel in storage.

It is also expected to examine mechanisms that could be used to moderate price fluctuations and increases.

The three-person inquiry panel must submit its final report by Aug. 30.


Oil companies may be called to testify under B.C.’s gas price probe

British Columbia’s independent energy regulator will have the power to call oil company representatives as witnesses into an investigation of high gasoline prices in the province.

Premier John Horgan has tasked the B.C. Utilities Commission to examine the market factors that affect wholesale and retail gas prices, and he wants a report by Aug. 30.

Gas prices hovering around $1.70 per litre in the Metro Vancouver area have been the highest in Canada for several months.

Horgan says he’s given the utilities commission broad terms of reference to conduct a fair and transparent investigation that would include concerns about competition and why recent gas refining margins for Vancouver have been more than double the Canadian average.

Liberal Leader Andrew Wilkinson has been calling on the New Democrats to reduce provincial gas taxes and has applied to participate in the investigation as an intervener.

Horgan says in a statement the terms of reference give the utilities commission the reach to investigate price fixing and gouging and to make recommendations.


Alberta oil cuts, close the taps bill are unwelcome interventions: Suncor CEO

Incoming Suncor president and CEO Mark Little addresses shareholders. Photo: Jeff McIntosh Canadian Press

Incoming Suncor president and CEO Mark Little addresses shareholders. Photo: Jeff McIntosh 

 

The new CEO of Suncor Energy Inc. says he doesn’t want the Alberta government to carry through on its threat to cut off shipments of oil and refined products to B.C. if its western neighbour continues to interfere with pipeline growth.

Following the company’s annual meeting in Calgary on May 2, Mark Little said any such action resulting from the proclamation of Bill 12 by the new United Conservative government this week would create a barrier between Suncor’s refinery assets in the Edmonton area and its customers in British Columbia.

He said Suncor is using the Trans Mountain pipeline to the West Coast now to bring gasoline and diesel to the B.C. market and it supports pipeline expansion so that it can grow that market.

“We’re hoping that through the government’s negotiations this can get sorted out, because the last thing we want to do is have an impediment in serving our customers,” he said.

He added he views the Alberta bill as “a fairly significant intervention into a market to try to resolve a dispute.”

Earlier in the day, Little told analysts on a conference call that Suncor remains opposed to another Alberta market intervention, its oil production curtailments, in spite of their “slightly positive” impact on first-quarter financial results.

The results show the value of Suncor’s integrated business model and extensive pipeline contracts at a time of turmoil in the industry, he said.

“In the fourth quarter of 2018, there were low benchmark prices with wide heavy and light crude oil differentials. Whereas, in the first quarter of 2019, there were higher benchmark prices and narrow differentials,” Little said.

“Both quarters, we were able to generate significant funds from operations.”

Little officially took over as chief executive from Steve Williams at the annual meeting in downtown Calgary. Williams was given a standing ovation by shareholders after a speech about the company’s accomplishments during his seven years as CEO.

Alberta’s decision to impose quotas on its biggest oil producers was designed to free up pipeline space and draw down crude storage after price discounts on western Canadian oil spiked last autumn.

The move is supported by oilsands producers like Cenovus Energy Inc., whose CEO pointed out last week the resulting higher prices have helped boost royalties to Alberta’s treasury.

But it’s opposed by rivals such as Imperial Oil Ltd. and Husky Energy Inc. who note that crude-by-rail exports plunged to 131,000 barrels per day in February from an all-time high of 354,000 bpd in December _ which means oil export capacity was actually reduced.

Both points are accurate, said Little, but he added the confusion means Suncor and others are reluctant to spend money on new projects.

The UCP government has supported curtailments brought in by the NDP and favours gradually reducing the cuts over the coming year.

Suncor said its quota strategy involved maximizing highly profitable upgraded synthetic crude oil volumes, while throttling back lower-margin mined raw bitumen, a move that has temporarily increased its operating costs per barrel.

The company said average realized bitumen prices jumped to $62.92 per barrel at Fort Hills in the first quarter, up from $30.57 in the fourth quarter of 2018, as oil price discounts eased.

The Calgary-based oilsands producer and refining giant reported net income for the first three months of the year that beat analyst expectations thanks to higher oil prices, record downstream results, growing oilsands production and a $264-million after-tax insurance gain on its assets in Libya.

Net earnings were $1.47 billion or 93 cents per share in the quarter, up from $789 million or 48 cents in the same period of 2018.

Its operating profit came to $1.2 billion, compared with $985 million in the first quarter of 2018.

It had total oilsands production of 657,000 barrels per day in the first quarter, compared with 572,000 bpd a year earlier, thanks to gains at the expanded Fort Hills oilsands mine and higher contributions from the Syncrude mine and upgrader, in which it has a 58.7 per cent stake.

The company says refining and marketing delivered record operating earnings of $1 billion, up from $789 million in the first quarter of 2018.

Suncor said production from its East Coast offshore Hebron project increased to 18,300 bpd (net to Suncor) and is continuing to grow following the completion of a fifth production well in the first quarter.

It said first oil was achieved ahead of schedule in the quarter at the Oda project offshore Norway, in which it has a 30 per cent stake.