After reading this you may all think that you’ve contracted “Yogi Berra disease”, colloquially known as deja vu all over again syndrome. This is because in a recent report I ruminated on the elliptical thought processes going through the mind of one of our provincial premiers, that being B.C.’s John Horgan, and his threat to investigate the oil companies and come up with answers as to the high gasoline prices in his city of Vaincouver.
I thought it was a huff and a bluff. But I was wrong!
In May of this year, this task was delegated to the B.C. Utilities Commission – theoretically an independent scrutineer, but in my view, another loyal member of Horgan’s Heroes. This government-ordered inquiry wants the oil companies to provide information regarding their retail profit margins for gasoline and diesel. The project was planned to be a four-month song and dance to be concluded by the end of August.
As politicians can be short in the original thought department, this inquisition may become a handy soapbox for other provinces to climb on into this launch period to the federal election. So, this investigation could be contagious.
Altruistic to the core, I offer my comments that may cut down the inquiry time from four months to an hour and a half.
Not surprisingly, the oil companies with retail exposure in the Lower Mainland have refused to release their financials on retail price margins. The price at the pump is made up of several factors, not just the retail margin, which is the difference between the wholesale price and the pump price. This margin is easily followed on a daily basis by subtracting the publicly posted daily rack prices from the all-taxes-excluded pump price. The result is the retailer’s gross margin to cover all expenses.
The refining margin, the difference between the cost of crude and the wholesale price, is noticeably higher in B.C. versus the rest of the country because there is really only one refinery to serve the entire Lower Mainland.
Want lower prices?
Increase supply with more, not less, refining capacity, otherwise you will continue to be at the mercy of importing gasoline from U.S. refineries in Washington.
Another factor is taxes (52 cents per liter in the Vancouver price), but the Horgan administration has ordered that discussion or analysis is not part of the (his) study.
Another don’t-talk-about-it factor is the Trans Mountain pipeline (TMX), which brings crude, gasoline and diesel from Edmonton to the Lower Mainland.
So, taxes are out, and supply constraints don’t matter?
One key factor in the pump price is the cost of crude, and this is the real reason the oil companies are being non-compliant with the order (oops, I meant request). The crude costs incorporated into their netbacks vary from supplier to supplier and are not just the WCS daily posted prices but can be blends of different crudes with differing chemical slates and equally differing prices. No one oil company is going to make their crude costs open to access by their competition.
If the B.C. government compels oil companies to release this information, then be prepared for a supply crunch as foreign-owned refineries such as Shell and Esso will follow the lead of oilsands investors and take a hike, and a long one – right out of the country. If this were to happen, then the Trudeau government could always nationalize the refining industry just as they have with the TMX.
That’s not deja vu, that’s a nightmare.
~ The Grouch
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