Why Vancouver is still getting utterly hosed on gas prices

Why Vancouver is still getting utterly hosed on gas prices

Over the weekend, gas hit 164.9, an all-time Canadian record for a major urban area

A gas pump. In Vancouver, these are currently squirting out fuel more expensive than milk.

This is a re-post of an article published in July, when Vancouver gas prices were breaking records with the then-exorbitant rate of $1.50 per litre. Over the weekend, Metro Vancouver gas prices hit an all-time record of $1.64, with no conceivable end in sight. 

And the B.C. metropolis appears to be alone in paying through the nose for petroleum. In Montreal, prices are hovering around $1.30. In Toronto, prices are as low as $1.14. In Edmonton, the place of origin for much of Vancouver’s gasoline, it’s possible to fill up for $1.08

Below, a quick guide to how Vancouver wound up paying some of the highest gas prices in the hemisphere.

Vancouver’s gap between oil prices and gas prices is extraordinary — and it keeps getting worse
There’s something in the oil industry called “refinery margin.” It’s a measure of the price difference between what a refinery sells and what it paid for raw materials. So, if a refinery buys $10 of oil and turns it into $12 of diesel, it has a refinery margin of 20 per cent. A recent report from Vancouver’s Navius Research contained a staggering factoid: Since 2008, the Vancouver-area refinery margin had exploded from 13 to 35 per cent. In the rest of the country, meanwhile, margins were less than 18 per cent. The Navius report speculates that this is due to a lack of competition: With only a handful of fuel providers in the region, they’re able to tacitly allow prices to artificially rise. “I’ve seen no evidence that this has anything to do with a lack of competition at the refinery level,” said Jason Parent, a vice president with Kent Group, the petroleum analytics firm that provided the Navius data on refinery margin. Parent cautioned against the assumption that a high refining margin automatically means higher profits. All manner of costs, from transportation expenses to regulatory compliance, can swell a refinery margin. Jennifer Winter, an energy economist at the University of Calgary, was also skeptical that Vancouver’s prices could be attributed to malice. “A large refining margin is usually a function of transportation constraints rather than a deliberate exercise of market power,” she said, adding that plenty of Canadian cities rely on small numbers of fuel providers without their refinery margins skyrocketing.

There’s only one refinery
Toronto is connected by pipeline to four large Southern Ontario refineries, with the smaller Clarkson refinery based right in Mississauga. Edmonton has an entire Refinery Row. But Vancouver, despite a booming population, only has the tiny Burnaby Refinery processing about 50,000 barrels of petroleum per day. Tack on the gasoline needs of nearby Vancouver Island and the refinery is lucky to meet one third of the region’s petroleum needs. This isn’t an accident: The Lower Mainland used to have four refineries, but shut down three of them in the early 1990s. The result is that most of Vancouver’s gasoline has to be refined elsewhere, which leaves the region vulnerable to wild swings in prices. Imagine if Vancouver closed most of its bakeries and relied on Alberta and Washington State to provide most of its fresh bread: All it would take would be one storm or highway closure for baguette prices to leap out of control. A new refinery probably isn’t the answer, but Vancouver would certainly be in better shape if, like most major cities, there were a few more refineries left around from the 1970s.

An aerial view of the Burnaby Refinery. POSTMEDIA FILE

There’s also only one pipeline (and it’s full)
Up to 60 per cent of the fossil fuels burned in Vancouver start life in an Edmonton refinery. From there, they’re loaded into the Trans Mountain pipeline and shipped west. But the pipeline can’t fully meet the needs of an expanding Lower Mainland and it’s already full. The result is that Vancouver is increasingly dependent on Washington State to meet its fuel needs. Taken together, the Lower Mainland and Vancouver Island “is the only region in Canada that is reliant on outside sources for a good chunk of its fuel needs,” said Dan McTeague, senior petroleum analyst at GasBuddy.com. He estimates that as much as 25 per cent of the Vancouver fuel market is supplied by the Americans. So let’s review: The one pipeline is full, the only refinery is maxxed out and thousands of Vancouver cars and busses are kept on the road exclusively by whatever fuel can be imported by truck or barge. As Canada’s northern territories will happily tell you, trucks and barges can be a particularly expensive way to move gas.