Why are B.C. gas prices surging when the province gets most of its gas from local refineries?

Why are B.C. gas prices surging when the province gets most of its gas from local refineries?

by Sue Jones
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B.C. gets most of its gasoline from Burnaby, Edmonton and Washington state, so why does supply from Russia matter? Here’s an explanation.

Surging Gas Prices

Prices at many B.C. gas stations, including this one in Vancouver, have been above $2 a litre since Friday. (Ben Nelms/CBC)

The price of gasoline at the retail level has hit record highs across the country this week, with drivers in British Columbia seeing prices soar past $2.10 per litre over the weekend.

Economists, fuel experts and politicians have agreed prices are rising because of Russia’s invasion of Ukraine.

But B.C. gets most of its gasoline from Burnaby, Edmonton and Washington state — so why does supply from Russia matter?

Here’s an explanation.

First off, why is gas so expensive?

Gasoline is made from crude oil, the cost of which is determined globally. The cost is influenced by international supply and demand or geopolitical events.

Crude prices were already high before Russia invaded Ukraine but now, there’s even more uncertainty around long-term supply since Russia is one of the largest producers of oil and gas in the world.

“It freaks you out as a buyer,” said Vijay Muralidharan, a senior consultant at energy analytics firm Kalibrate. “Even if it doesn’t happen, there’s paranoia, so you bid up to make sure your supply is there.”

The price per barrel of crude oil soared this week to levels not seen since 2014, hitting $130 US per barrel Monday before dropping closer to $120.

Surging Gas Prices

B.C. gets most of its gasoline from Burnaby, Edmonton and Washington state. (Ben Nelms/CBC)

But B.C. gets most of its oil from nearby refineries. Why does losing Russian supply matter?

Most of the gasoline in B.C. comes from refineries in Burnaby, Edmonton and Washington state, but the selling price of the oil going into those refineries is still decided by the global market. 

“We have one price of world oil, and that basically is the price we cannot escape from. So no matter how much we wish the prices are local, they’re not,” said Werner Antweiler, a professor at UBC’s Sauder School of Economics.

Oil producers sell their products to refineries competitively, so if prices are up internationally, they’ll be up locally. 

Marc Lee, senior economist with the Canadian Centre for Policy Alternatives, said the cost is being passed onto the consumer.

“Companies are making massive, massive profits,” he told CBC last week.

Why not remove carbon taxes?

There are four main costs that make up the price of regular gasoline:

  • The price of crude oil.
  • Refining costs.
  • Distribution and marketing costs.
  • Taxes, including federal, provincial and municipal taxes.

The cost of crude oil is the highest of those four costs, usually determining roughly half of the retail price of gasoline.

Removing taxes would lower the price of gas, but would do nothing to address the crude oil problem.

“Increasing the carbon tax as planned in April by one cent per litre, that pales in comparison to the 20 or 30 cents a litre that is essentially the Putin tax that’s coming from the invasion of Ukraine by Russia,” said Antweiler.

“The problem is we have a situation in the global market and no amount of changes to taxes will make that go away.”

Still, Alberta on Monday reduced its taxes by 13 cents per litre on both gasoline and diesel to relieve pressure at the pump. B.C.’s minister of public safety said the coastal province has no plans to follow that lead.

“The reality is the gas price situation is driven by events outside of provincial control,” Minister Mike Farnworth said Monday, adding there is concern fuel companies could raise their prices to profit off the difference if taxes were removed.

“One of the challenges on that taxation side … there’s no guarantee that the price stays down, that the fuel companies don’t just jack the price up to take advantage of the margin that you may have created.”

The Canadian Taxpayers Federation said last year drivers in some B.C. cities pay some of the highest gasoline taxes in the country, at 54 cents in taxes per litre in Vancouver.

Is there any hope for relief?

Antweiler said there is a chance for a break at the pumps if Saudi Arabia, the United Arab Emirates or the United States start churning out more supply — but that could take a few months.

Another option for supply could come from Iran if nuclear sanctions are changed. If that happens, Iran could send more oil into the global market.

Talks to unleash Iran from international sanctions are in advanced stages, but again, supply might not come online soon enough to replace Russian output.

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