Comment: Pipeline won’t keep gasoline prices down; there’s no supply shortage

Re: “Why gas prices spike in spring — and why they might stay high,” March 24.

This article is an exercise in unsubstantiated claims generating erroneous and alarmist conclusions.

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The article asserts there is a “chronic supply shortage” to justify ongoing high prices and that planned refinery maintenance explains a recent spike. Publicly available facts and market data show just the opposite.

B.C. exports more gasoline than it imports. Port of Vancouver statistics show that during 2017, exports to the U.S. exceeded imports by almost 70 per cent, giving rise to net gasoline exports of 6,000 barrels a day. There is no supply shortage in B.C. — chronic or otherwise.

Gasoline demand is consistently met by Parkland’s refinery in Burnaby and refined products from Alberta along Trans Mountain’s existing pipeline, rail or truck. It’s delivered to Vancouver Island by barge. There is no need for imports from the U.S., unless it makes commercial sense, which should lead to lower, not higher, prices. If prices were driven by competitive forces, pump prices would be far lower.

The article says a spike of as “much as 20 cents per litre” is a seasonal occurrence due to an annual planned shutdown at the Parkland refinery. This claim exposes ignorance — or an attempt to deliberately misrepresent how the industry works.

Planned refinery shutdowns are expected. They take place when demand is seasonally low.

Parkland’s turnaround event manager, Gord Bruce, said inventories were built up, agreements with partnering organizations were entered, and that “no supply shortfalls are anticipated.”

The article then solves its fictional supply problem with Trans Mountain’s expansion. The project “is the only viable option” and “could drop local gas prices dramatically” because more “refined gas [would be sent] to the coast.”

Anyone familiar with Kinder Morgan’s business case knows the project will not increase imports. The new pipeline is intended to transport 540,000 barrels a day of diluted bitumen — oilsands heavy — to the Westridge dock for offshore markets. The Burnaby refinery is not configured to use heavy oil — it requires light. As National Energy Board pipeline statistics show, Parkland receives all the crude it can use through the existing pipeline, and has for years.

Refined product supply to B.C. is not expected to increase, either. Kinder Morgan was explicit when it asserted during the NEB review “that refined product shipments will not increase as a result of [the Trans Mountain Expansion Project].”

Current unfair pricing will not change if Trans Mountain’s expansion is built, while pump prices will most certainly ratchet up. We know this, because the NEB approved a more than doubling of the toll rates Kinder Morgan will be allowed to charge on the existing pipeline one the expansion is complete. It did this to help pay for the new pipeline — the one intended to serve Asian markets.

Higher transportation costs are considered by refiners and marketers as a cost of doing business and are passed on at the pumps. Trans Mountain’s expansion is not commercially viable unless B.C. consumers and businesses subsidize it by more than two cents a litre in higher pump prices — by more than $100 million a year.

So why are gas prices so high? It’s not taxes. When taxes are taken out of the picture and gas prices in B.C.’s major cities are compared to other cities in Canada net of tax, we still see excessively high pump prices.

The reason is because the refining and marketing profit is abnormally excessive. Federal government statistics show this practice has been going on for years.

The recent price spike in Greater Victoria is further evidence of suppliers getting away with charging what the market will bear.

Tolerance for this practice is built when false narratives are publicly advanced based on unsubstantiated claims designed to excuse the industry’s predatory practices. Scraping the surface reveals that not only economic theory, but market facts and data, prove it should be otherwise.

Robyn Allan is an independent economist and was a qualified expert intervener at the Trans Mountain Expansion Project review.

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