PREMIER, READ THIS BEFORE MESSING WITH GAS PRICES
Recently, Alberta government officials floated some crazy ideas to tackle Alberta’s high gasoline prices.
Calgary Herald columnist Don Braid confirms that NDP government officials told him that the Alberta government would not lower its carbon tax, which adds about seven cents to the cost of every litre of gasoline sold to consumers at the pump in Alberta. Rather, the NDP is apparently considering “other means” to drop high gasoline prices, such “as pressing refineries to lower prices, maybe subsidizing them, perhaps enacting some kind of cap legislation.”
“Our government has always been very, very focused on affordability for regular Albertans and that is why we did things like cap school fees, cap electricity rates, froze tuition …,” Notley told reporters in Calgary on Monday.
Before Notley and Co. start dreaming up some socialist solution to higher gasoline prices, you’d think they’d have the basic smarts and humility to actually find out why our gas prices are so high. How can you develop a solution to a problem when you don’t understand what the problem is?
One of the top analysts of gasoline prices anywhere, Michael Ervin, a senior vicepresident with The Kent Group Ltd., is happy to explain the unusually high gasoline prices facing Albertans since around May when the average price for regular gasoline in Calgary was $1.29.9 compared with just $1.12 in January.
Yes, crude costs have increased from 43.4 cents per litre in January to 48.1 cents per litre in August, but that’s only about five cents and the difference between January and now is, on average, 18 cents per litre.
In the U.S. Midwest a total of 850,000 barrels a day of oil refining is offline due to scheduled maintenance. About 430,000 barrels of that is from BP’s enormous refinery in Whiting, Ind., which also spans into east Chicago in the neighbouring state of Illinois.
Ervin, who was reached at his home on Vancouver Island, said “the very robust export of gasoline out of the U.S. Gulf Coast into the South American markets is also affecting our supply of gasoline.”
So what would happen if Notley’s government forced refiners to take less of a margin? Ervin says it wouldn’t be pretty.
“Wholesale prices in Edmonton have to be more or less competitive with the wholesale prices south of the border and if refiners drop their wholesale price by, say, 10 cents a litre that would be great for Calgary consumers but there would be no gas to actually supply them because there would be a rush on that gasoline by U.S. wholesale customers and so the wholesale price has to remain competitive with wholesale prices in other parts of North America,” explained Ervin.
Since supply is so tight right now, the margins for refiners are much higher than usual.
Right now, refinery margins are high at 37 cents in August and 34.7 cents in July, compared with 26.6 and 23.6 cents per litre in January and February.
“If margins are so low in Eastern Canada, why not bring (eastern Canadian product) into Western Canada?” asked Ervin rhetorically. “My rather pat answer to that is all the pipelines in Alberta flow one way and that’s out, not in.”
The good news, however, is BP’s Whiting refinery is expected to be back online in October.
Jason Parent, a vice-president with The Kent Group, says not only does the shut down of major refineries in the U.S. Midwest impact the cost of gasoline and other refined products, “but it also has an effect on Canadian crude prices because they’re a huge buyer of Canadian heavy crude so when they’re offline, Canadian heavy crude prices tend to sink.”
What can be done to bring down gasoline prices in Alberta, Ervin is asked?
“Lower the taxes,” said Ervin. “What will not work is legislating or regulating a lower wholesale price. You’d have to build a wall between Alberta and Montana, so to speak. You can’t really regulate the retail price because you’d be squeezing what is already a very narrow margin for the retailer.”
Indeed, in June, when the average gas price was $1.27 per litre of gas, the retailer margin was a measly 4.4 cents a litre. In August, the retailer margin was 8.7 cents per litre, which isn’t a lot considering that federal and provincial taxes cost consumers 35.9 cents per litre, with the Alberta government taking 19.7 cents for every litre of gas.
Ervin says that no gas station in Canada can survive on its current margins on petroleum products alone without selling the chips and drinks as well.
The best thing to do about Alberta’s high gas prices is to wait until these refineries come back online in one month. There is no need at all for the provincial government to dream up some solution that will only make the problem worse.
Next time, Premier Notley, why not have one of your people call Michael Ervin directly?
You’re welcome.