Here’s why B.C. pays such insane gas prices, and why even a new pipeline might not help
Gas prices are reaching punishing levels in Metro Vancouver.
Prices hit an average of $1.536 on Monday after they hovered close to $1.50 per litre since late February, according to GasBuddy.
Coverage of Vancouver gas prices on Globalnews.ca:
Surely, there’s a way to temper prices in a region where people are already stretched thin by astronomical shelter costs.
Expanding Kinder Morgan’s Trans Mountain pipeline is one way to do it, if you ask an expert. But ask another and he’ll tell you he doesn’t see any relief coming from that project.
Here are a few answers to questions about high gas prices, and whether the Trans Mountain pipeline expansion could do anything to cool prices at the pump.
Could Kinder Morgan’s Trans Mountain pipeline expansion project calm gas prices?
That question nets a firm yes from Michael Ervin, the senior vice-president at Kent Group Ltd., a London, Ont.-based analytics firm focused on the petroleum industry.
“Absolutely, it would lower the price,” Ervin said.
“With the extra capacity there, it would allow wholesale prices in Vancouver to basically go down to the same level as across the rest of Canada.”
Ervin said Vancouver is facing tight supply conditions for gasoline, and that increased capacity could allow for prices to drop.
“It’s economics 101,” he said. “There’s no ifs, ands or buts about it.”
But Anthony Perl feels differently.
An SFU political science professor and the co-author of Transport Revolutions: Moving People and Freight Without Oil, he said B.C. is unlikely to see any bargains from increased supply because of the cost of financing infrastructure like the Kinder Morgan pipeline expansion.
“They’re going to want their money back,” Perl told Global News.
“Not in 50 years, but in 15 years, and that means higher prices because of the higher return, higher interest rates, expected returns on that investment.”
Perl said the proponents of the Trans Mountain pipeline expansion will want all their money back soon, and that they’re already spending lots of cash to meet the conditions of its approval — not to mention dealing with protests.
“I don’t see any relief from that frankly,” Perl said.
Why are Vancouver’s gas prices so high?
Vancouver gas prices are spiking for a number of reasons.
One of them is that supply is tight, Ervin told Global News.
Burnaby’s Parkland refinery is a key supplier for the Lower Mainland, but it can only meet a portion of the demand there, Ervin said.
That means supply has to come from elsewhere, like the Cherry Point refinery in Washington state.
Beyond that, refineries are reaching supply capacity, and “that’s where you see refinery margins increase as you would expect of any commodity,” he said.
This is also the time of year when refineries are switching from winter to summer fuels, Perl noted.
“They have to stop and recalibrate,” he said.
“They have to clean out and replace certain pieces of the infrastructure, so that means typically the output goes down in the autumn and spring season.
“That usually triggers an increase in price.”
How much do high gas prices have to do with taxes?
Plenty, relative to other cities — but that’s not the only reason.
Metro Vancouverites pay $0.3217 of tax on every litre of clear gasoline, according to the provincial government.
This chart shows the price of gasoline in Vancouver from 2007 to 2018. The green line is wholesale gasoline not including tax, the red line is gasoline including tax. Prices shown as cents per litre (data via Kent Group):
The taxes work like this: $0.17 goes to TransLink, $0.0675 to the B.C. Transportation Financing Authority (BCTFA) and $0.0667 to the provincial carbon tax, which goes into general revenue.
And that’s without considering sales taxes.
Is Vancouver seeing the highest gas prices in its history?
No — but they’re not far off the highest on record.
At $1.497 per litre so far in March, the average price of gas in Vancouver is the highest it’s been in years, but it’s not the highest ever.
The high mark for Vancouver gas prices for the data it makes available was $1.518 per litre in June 2014.
Nevertheless, Vancouver’s gas prices are higher this month than in any major Canadian city that Kent Group looked at — higher than Calgary ($1.13), the City of Toronto ($1.242), Montreal ($1.272) and Halifax ($1.13).
This chart shows the price of gasoline including tax in Vancouver, Calgary, Toronto and Montreal from 2007 to 2018. Prices shown as cents per litre (data via Kent Group):
When will gas prices drop again?
Prices could take months to come down, if history is any indication — but it’s hard to say how much they’ll fall.
Vancouver gas prices shot up to $1.352 per litre in June 2015 before calming to $1.164 in October of that year.
In the following year, gas prices grew to $1.228 in June before falling to $1.16 in November 2016.
In 2017, prices climbed to $1.388 in April before they fell to only $1.326 in July.
The long-term trend for gas prices is up, but that could change if commuters switch over to new energy sources such as electricity, Perl said.
“If it happens slowly, then gas prices are going to keep going up because there’s still going to be a lot of demand,” he said.
“If batteries and other electric vehicles come in faster, then we may not see huge increases in gas prices, because there won’t be as much demand for it.”
A 2016 report by the World Energy Council forecast oil demand peaking sometime between 2040 and 2050 as people are expected to move to alternative fuels.
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