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If Canada has so much oil, why is our gasoline so expensive?

Galseigin

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Dec 10, 2014
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Here's a interesting and informative article about our gas...

Why are we paying a nearly 50 per cent premium on a product that by all rights should be flowing from our kitchen faucets?
At the moment this story goes online, gasoline in Tsawwassen, B.C. is $1.45 a litre. Drive a mere two kilometres south into Point Roberts, WA, however, and gas can be had for the equivalent of CAD$1 per litre.

What gives? Canada has more oil than everyone except Venezuela and Saudi Arabia and we remain the single largest foreign supplier of U.S. oil. So why are we paying a nearly 50 per cent premium on a product that by all rights should be flowing from our kitchen faucets?

All your questions are answered below. Special thanks to Jason Parent, a consultant with Kent Group Ltd. who was particularly patient with our questions on the downstream petroleum market.

Our status as a major oil producer is surprisingly irrelevant to what we pay for oil products
Think of oil like a big, juicy bluefin tuna. If a Nova Scotia fisherman pulls up a 400 kg tuna, he’s not going to sell it to the diner down the street if he knows he can sell it to Japan for $600,000. Similarly, the minute Alberta pumps out of a barrel of oil, it’s going to be sold to whoever’s willing to pay the highest price. As a result, even if your next door neighbour is the Hebron oil platform, if you want to buy oil you’ve got to be prepared to pony up roughly the same price that a New Yorker would pay. The technical term for this is that we Canadians are “price takers”; if we want oil, we have to pay the same as the “price makers” in the much larger U.S. market. If you don’t like this system, you can always do like Trudeau and impose an artificially low national price for oil. But a word of warning; it didn’t go so well last time.

Gas is a whole different product than crude oil
In late 2014, crude oil was about $80 a barrel and the average Canadian gasoline price was about $1.20 a litre. Nowadays, gas prices are about the same, but crude oil is only $55 a barrel. That doesn’t seem right, does it? It does if you consider that in an average litre of Canadian gasoline right now, only 48 cents of the final cost is due to the cost of the crude oil used to make it. Refiners, gas station owners and the government all need to take their cut of a litre of gasoline, and the relative sizes of those cuts all contribute to the final price at the pump. It’s like beer. It’s basically free to make a drink from grain, hops and yeast, but the picture gets much more complicated when you have to factor in distribution, taxes, bartender salaries and all those Hockey Night in Canada commercials. Right now, for instance, our recent blip of high gas prices is being driven almost exclusively by high refining costs.

Our taxes are way, way (way) higher
The number one reason for high Canadian gas prices, by a long shot, is taxes. Road tax, carbon tax, federal excise tax, GST, HST and, in some cases, a municipal transit tax. Metro Vancouver, for one, keeps its SkyTrains running with a 17 cent per litre municipal gasoline tax. According to the Washington, D.C.-based Tax Foundation, the highest gas taxes in the United States are in Pennsylvania, where the total government take on a litre of gasoline is equivalent to $0.26 CDN. Compare that to Montreal where drivers are paying $0.32 per litre in federal excise tax, provincial fuel tax and local transit tax. And that’s before the 15 per cent sales tax.

Building more Canadian refineries generally won’t make things better
Canada exports more refined products than it imports. In July, we took in 1.5 million cubic metres of gasoline, diesel and other petroleum products. Meanwhile, we exported 2.6 million cubic metres of the stuff. Geographic considerations aside, it’s technically true for Canada to gas up every Cessna, Honda and John Deere in this country using our own refineries. According to Parent, the market is so crowded that there’s no real “business case” for Canada to up its refinery game. Besides, even if a new refiner did open its doors (it’s about to happen in Alberta, in fact), that refiner is still going to be selling at whatever prices the Americans are willing to pay.

Pipelines can do a lot of things, but they’re not so great at bringing down gas prices. Even if we could get cheap Alberta oil flowing into every refinery across Canada, there’s nothing forcing those refineries to pass on those savings to the consumer. Below is a lovely graph prepared for us by Andrew Leach, an economist at the Alberta School of Business. It shows the prices for two varieties of crude oil, West Texas Intermediate and Brent. It also shows “crack spreads,” the extremely unfortunate name for the price difference between crude oil and the products made from it. What’s amazing is that when the price of West Texas Intermediate went down in 2010, the only result was that the crack spread went up. The refiners, not the customers, were benefiting from the cheaper crude. “Refineries don’t pass on cheap crude costs if they don’t have to do so,” said Leach. Dan McTeague with GasBuddy.com, however, disagrees. If Canada could only get its cheap Alberta oil to the highly competitive Eastern Seaboard, he says refiners would immediately use their price advantage start undercutting each other. “Don’t think for a moment that won’t make a difference at the pumps,” he said.

When the dollar is low, we pay more for fuel
In the NHL, the persistent problem for Canadian teams is that they have to pay their players in U.S. dollars. Thus, when the Canadian dollar is weak, the payroll costs of a team like the Ottawa Senators can skyrocket by as much as 40 per cent. Similarly, when our dollar is weak, we need to pay a premium to compete with American prices. The exchange rate, incidentally, is the one guaranteed area in which pipelines would have a beneficial effect on prices. If Canada were to suddenly embark on a pipeline-building spree, it would boost oil production, which would then boost the value of the dollar and usher in another period of cheaper gas and NHL players.

That cheap gas station across the border might have lower profit margins
Let’s return to the Point Roberts example in the introduction. Despite having only 1,300 people, this Washington State enclave has an incredible four gas stations. Obviously, these stations are supported in part by enterprising Canadians popping over for a cheap fill-up. And given that the Canadian clientele are obviously very interested in saving money, it’s a particularly cutthroat market when compared to Tsawwassen. Still, gas stations everywhere are generally kept very honest by competition, a fact reflected by wildly varying gas station prices. “The fact that prices swing or fluctuate is generally an indication that competition is working,” reads a note by Canada’s Competitive Bureau. Compare gas stations to the not-so competitive market for Kraft Dinner. Even when the local No Frills is selling KD for a dollar a box, Save On Foods will feel pretty safe about continuing to sell their Kraft Dinner for a comparatively outrageous $1.89.

Despite everything, there’s often still a price gap
Even when stripping away the taxes and the exchange rate, there’s still a pretty persistent gap between the Canadian wholesale gas price and the wholesale gas across the border. Jason Parent noted that there are structural reasons for this. A good example is differences in Canadian and U.S. gasoline regulation. Sometimes, Washington State tank farms are full of a special gasoline blend unique to the U.S. market, forcing Vancouver to spend extra buck to find a more conventional gasoline elsewhere. But Dan McTeague of GasBuddy.com is pretty sure that more unseemly forces are at work in maintaining the U.S.-Canadian price gap. He chalks it up to a “distinct lack of competition” among Canadian refiners, allowing artifically high wholesale prices to persist unchecked.

http://nationalpost.com/news/canada/if-canada-has-so-much-oil-why-is-our-gasoline-so-expensive
 

TeeJay

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Jun 20, 2011
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Dumb thread
Even if we produce any product that much cheaper than rest of the world, why would any sane person sell it cheaper?

We actually import gas from the USA
 

black booty lover

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Without reading that whole article, I always thought the biggest reason was because even though we have a ton of oil, extracting it is much more costly than places like the middle east where they pretty much stick a straw in the ground and it comes out.
 

TeeJay

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Jun 20, 2011
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Without reading that whole article, I always thought the biggest reason was because even though we have a ton of oil, extracting it is much more costly than places like the middle east where they pretty much stick a straw in the ground and it comes out.
The extraction is dirt cheap and a very small percent of cost (eg compared to capital costs, taxes, even transport)
I'm sure we have far more stringent environment laws and such but other steps in the chain still are far more costly

Saudi (as per 2016) costs MORE to produce oil than other locals (eg Iran / Iraq) and even some other major producers (eg Russia)

The Canadian oil sands also produce very low grade crude, hence less demand and less value to rest of the world
We just have alot of it

The USA charges more taxes than Canada does as well (actually we are one of the lower taxed countries, excluding nearly tax free places like Saudi, UK, and Norway)
 

bver_hunter

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Nov 5, 2005
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Without reading that whole article, I always thought the biggest reason was because even though we have a ton of oil, extracting it is much more costly than places like the middle east where they pretty much stick a straw in the ground and it comes out.
Refining the dirty tar sands oil is a very expensive process. Also, you have to bear in mind that unlike other consumer industries, the oil sector is more of a monopoly. There are no "Dollarama" types of companies that can undercut the big boys, and in the end everything is geared to the stock market. Realistically, even if the new taxes were factored into the cost, gasoline should be no more than $1 a litre at today's prices. However, the prices were raised at one time based on forecasts of "shortages" due to damages to certain refining facilities down South. There is still a vast surplus and the prices never really plummeted when the vast surpluses kicked in once again. If you look round the globe gasoline / petrol along with alcohol and tobacco are always considered to be cash cows during the introduction of new budgets. Although tobacco was also taxed, the state of that industry has meant that it is no longer a generator of huge revenues. That is why the Governments along with the oil companies do benefit from artificially higher prices. European nations pay even higher premiums for their gasoline / petrol.
 

onthebottom

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Never confuse cost and price.

More competition and scale drives thinner margins and lower prices.

Canadian oil sells for a $15 discount to WTI, it’s not the raw material that is the issue
 

wigglee

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Oct 13, 2010
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Price fixing..... they used the Texas flooding months ago to hike the prices and even though that situation has stabilized , the price keeps inching higher instead of returning to where it previously was.
 

JohnLarue

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Jan 19, 2005
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The USA charges more taxes than Canada does as well (actually we are one of the lower taxed countries, excluding nearly tax free places like Saudi, UK, and Norway)
It's the other way around

http://www.nrcan.gc.ca/energy/fuel-prices/4935

Most of the difference in gasoline prices between Canada and United States is because of taxes. Gasoline taxes vary by state and province and at each national level. When taxes are removed, Canadian and American prices are similar
http://retail.petro-canada.ca/en/fuelsavings/gas-taxes-canada.aspx
In 2015, taxes in Canada represented on average 38 cents per litre, which is approximately 35% of the pump price.
 

onthebottom

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Price fixing..... they used the Texas flooding months ago to hike the prices and even though that situation has stabilized , the price keeps inching higher instead of returning to where it previously was.
High taxes, low competition.
 

nottyboi

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May 14, 2008
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Never confuse cost and price.

More competition and scale drives thinner margins and lower prices.

Canadian oil sells for a $15 discount to WTI, it’s not the raw material that is the issue
That has a lot more to do with the cost to transport then quality of the oil. Refineries do need to be set up to refine heavy crude, but once they are, the cost to refine is not that much higher. The split of products you get is also a bit less profitable as more upgrading needs to be done in the processing stage to yield more valuable distillates. But moving crude by railcar vs pipeline or ship is vastly more expensive and so that comes out of the price.
 

basketcase

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Dec 29, 2005
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To add to the price 'competitiveness' (they swear there is no price fixing :puke:) Canadian companies decided long ago that refining oil in Canada was unprofitable so we sell our oil to the US, they refine it, and sell it back to us as gas.
 

JohnLarue

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Jan 19, 2005
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Alberta failed to invest in refineries. The previous Provincial Governments were short sighted as far as future investments were concerned. That is why the Province are paying the price for their policies now that the price of oil has nosedived. No doubt the economy is picking up. The present Government are investing in building a refinery.

http://www.huffingtonpost.ca/2012/05/23/canada-oil-refineries_n_1539701.html
You really do not have a clue
https://globalnews.ca/news/2265665/...level-at-8-5-billion-on-track-for-start-date/
CALGARY – The costs of building Alberta’s first new oil refinery in 30 years have stabilized and it’s on track to be up and running by 2017, says the chairman of the company developing the government-backed Sturgeon project.

Ian MacGregor, chairman and chief executive of North West Upgrading Inc., says that with close to $5 billion already spent, he expects the total cost of constructing the refinery to come within the company’s $8.5 billion estimate.

In early planning stages, the project was estimated to cost less than $4 billion and some critics have referred to the swelling costs of the refinery as a boondoggle

Ted Morton, a former provincial finance and energy minister and current professor at University of Calgary’s School of Public Policy, has called the project a “multibillion-dollar boondoggle with high risks for Alberta taxpayers.”

Morton estimates the government will have to pay $63 a barrel in processing costs, but MacGregor disagrees, saying the cost will actually be about $35 a barrel.
Oil is trading just north of $50 bbl

You say the previous government was short sighted however
Energy Minister Margaret McCuaig-Boyd said in a statement that the Sturgeon refinery is an initiative of the previous government.

And more recently
http://calgaryherald.com/business/e...ion-prompting-call-for-auditor-general-review
A recent report by investment bank AltaCorp Capital estimates the Sturgeon plant near Edmonton, Canada’s first refinery in decades, will cost roughly $9.3 billion, up from the previous estimate of $8.5 billion.

The provincial government, which was already on the hook to backstop the project with $26 billion in tolling payments, said it will have to pay more construction costs increased by $800 million


Either way the reason we pay so much more for gasoline is taxes
Taxes = 35% of the pump price should tell you all you need to know

BTW: The NDP experiment in Alberta will likely be a one -term nightmare, especially if Justin Trudeau does not intervene to push the west coast pipeline through
 

JohnLarue

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Refining the dirty tar sands oil is a very expensive process. Also, you have to bear in mind that unlike other consumer industries, the oil sector is more of a monopoly.
The oil industry is not a monopoly, it is probably the most competitive industry in the world

There are no "Dollarama" types of companies that can undercut the big boys, and in the end everything is geared to the stock market.
What you do not understand is actually quite scary
Prices are set by supply and demand with one of the most robust futures markers in the world
The price of WTI has gone from $20 to $130 and down to below $30 bbl since 2000. If the big boys controlled the market as you say they are not controlling it well

Realistically, even if the new taxes were factored into the cost, gasoline should be no more than $1 a litre at today's prices. However, the prices were raised at one time based on forecasts of "shortages" due to damages to certain refining facilities down South. There is still a vast surplus and the prices never really plummeted when the vast surpluses kicked in once again. If you look round the globe gasoline / petrol along with alcohol and tobacco are always considered to be cash cows during the introduction of new budgets. Although tobacco was also taxed, the state of that industry has meant that it is no longer a generator of huge revenues. That is why the Governments along with the oil companies do benefit from artificially higher prices. European nations pay even higher premiums for their gasoline / petrol.
the ramblings of the uninformed
If you are going to pretend you know what you are talking about I suggest you try to learn something about this industry first
 

JohnLarue

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Jan 19, 2005
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Usual BS from you so I corrected your statement. Blame the NDP for no refineries being built for decades. Usual right wing nonsense.
I did not blame them for not building refineries
I simply pointed out you were wrong (as usual)

Originally Posted by bver_hunter View Post
The previous Provincial Governments were short sighted as far as future investments were concerned.
I do blame the NDP for letting the costs get out of control as financial responsibility is not their strong suit
 

bver_hunter

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Nov 5, 2005
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I did not blame them for not building refineries
I simply pointed out you were wrong (as usual)



I do blame the NDP for letting the costs get out of control as financial responsibility is not their strong suit
You pointed out absolutely nothing except spill some right wing nonsense. The link I posted clearly said that Alberta had failed to invest in refineries for decades. Only recently did they start building a refinery. One hundred percent right. They are banking on oil prices going north of $100 per barrel that the information experts say is a probability. In Canada the oil industry is a monopoly, with very little competition and prices at the pumps for all the different companies fluctuating in tandem with one another. Prove that to be otherwise????
 

K Douglas

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Jan 5, 2005
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We have a lack of refineries. Often we sell our oil to the US, they refine it and ship it back to us as gasoline. Completely asinine. On top of that we pay far more in taxes at the pump than the average American. Hence the difference in cost.
 
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