Gas prices could drop as refinery ends turnaround

Analyst predicts gas prices to drop below $1 per litre in Vancouver, as Parkland refinery comes back online

The Parkland refinery in Burnaby will be restarting after a maintenance shutdown. | BIV archives

What happened: Parkland Fuel Corp. (TSX:PKI) says it plans to have it refinery in Burnaby back in production soon, following a maintenance shutdown.

Why it matters: Demand for gasoline and jet fuel has dropped so much due to COVID-19 containment measures that at least one Canadian refinery plans to temporarily shut down.

Despite struggling with a dramatic drop in demand for refined fuels, and cutting its capital spending for 2020 as a result, Parkland still plans to restart its Burnaby refinery,following a maintenance shutdown.

As a result, Dan McTeague, president of Canadians for Affordable Energy, says Vancouver residents should see gasoline prices in the Lower Mainland drop by about $0.05 per litre tonight or by tomorrow morning – not that many Vancouverites have anywhere to go, thanks to a quasi quarantine that is keeping so many people at home.

At least one Canadian refinery appears to be shutting down temporarily, due to concerns about the COVID-19 virus and workplace safety, although a plummeting demand for gasoline and jet fuel is also no doubt a factor.

The North Atlantic Refining Ltd. is reported to be shutting down its refinery in Come By Chance, Newfoundland, due to concerns about the COVID-19 virus and worker safety.

The Parkland refinery in Burnaby, meanwhile, is expected to be back online any day now.

"We are on track to begin startup of the Burnaby refinery in early April and will provide notification when we achieve full operational capability," the company says in a news release. "After startup, optimal utilization rates will be determined based on the demand outlook at the time."

The refinery was taken offline for several weeks for “turnaround” – i.e. maintenance. This time of year, refineries also adjust their refining processes to switch from winter to summer blends.

In Vancouver, that often precedes a spike in gasoline prices. But both oil prices and the demand for gasoline and jet fuel are so low that Vancouverites may not endure the kinds of spikes seen in the last few years.

COVID-19 containment measures have resulted in a dramatic drop in commuting, air travel and vacationing. McTeague estimates that the demand for refined fuels is down at least 20% in Canada.

“There’s too much supply out there,” McTeague said.

And a price war between Russia and Saudi Arabia have resulted in a 60% drop in global oil prices since earlier this month.

To deal with the sudden sharp drop in demand for fuel, Parkland is cutting its capital spending in 2020 by $300 million. Its executives are even taking a pay cut.

The one capital expenditure not being cut this year is the $60 million earmarked for the Burnaby refinery’s turnaround.

CEO Bob Espey is taking a 35% pay cut, and other senior executives and board members are taking a 25% pay cut.

“We are proud to remain operational through this period and I would like to thank our team for their ongoing commitment to safely meeting our customer’s energy and convenience needs," Espey said in a press release.

"The current COVID-19 situation and associated impact on economic activity is expected to reduce demand for fuel globally. Parkland remains focused on providing essential fuel and convenience services to our customers, however, the extent and duration of the impact is uncertain."

Although diesel prices have also dropped in North America, it hasn't been nearly as steep a decline as gasoline and jet fuel, since the trucks, trains, farm equipment and some ships that that move goods and are deemed an essential service, mostly use diesel.