British Columbians planning summer getaways can expect to continue to pay record high gasoline prices this summer, no matter where they go, unless, of course, they drive an electric car.
If you are planning a trip to Alberta or the U.S., you will pay less than in Vancouver for gasoline, but even in the U.S. gasoline prices are at an all-time high, and are likely to stay that way for the rest of this summer.
Gasoline prices are currently in the $2.25 to $2.30 per litre range in Metro Vancouver.
Gas prices in the U.S., meanwhile, have breached the US$5 per gallon mark in recent weeks for the first time ever. At the average current price of US$5.19 per gallon, that translates to $1.76 per litre Canadian.
The reason for the record high gas prices is mainly high oil prices, although strained refining capacity in North America and globally is also a contributing factor.
Oil and refined fuels are highly fungible, so what happens in one part of the world affects oil and gasoline prices elsewhere, even in countries like Canada and the U.S. that have an abundance of oil.
Some marginal refiners, notably in the Mediterranean, shut down permanently during the pandemic, said Raoul LeBlanc, vice president of energy for S&P Global Commodity Insights.
Also, China, which had exported large volumes of refined fuels, has cut back on exports, he said.
“Between Russia, China and the shut down of the spare capacity from the pandemic, all of a sudden the world doesn’t have enough refining capacity,” LeBlanc said.
In Canada, crude oil inputs account for about half of the price of gasoline at the pump -- 40% to 55%, according to Shell Canada, with taxes accounting for 25% to 35%.
Also, gasoline prices almost always go up in the summer, relative to the rest of the year, simply because demand for gasoline increases. The summer of 2020 was an exception. Gasoline prices dropped below $1 per litre in the summer of 2020 in Metro Vancouver, as travel ground to a halt, due to pandemic restrictions.
The North American benchmark, West Texas Intermediate (WTI), is currently at $US117 per barrel, and was at US$120 a barrel less than a week ago. The last time WTI was that high was in 2008. Prices then plummeted, during the great recession of 2008-2009.
Another recession may be the only thing that tempers high oil prices, since there continues to be a global mismatch between how much oil is produced globally compared to demand -- a mismatch exacerbated by the war in Ukraine and the loss of some Russian oil exports.
Dan McTeague, president of Canadians for Affordable Energy, doesn’t see any easing of high oil and gasoline prices over the next few weeks.
“Oil will pick up steam in July, keeping pressure on fuel prices,” he said.
The International Energy Agency (IEA), in its monthly oil report, notes that Russia shut in 1 million barrels per day of oil production in April, deepening a supply shortage.
The IEA forecasts that Middle Eastern OPEC producers and the U.S. will increase oil production by 3.1 million barrels per day between now and December. So high oil prices can be expected to continue for the rest of 2022, before increased supplies begin to temper prices.
But there are wild cards that could either push prices down, or up, LeBlanc said.
One is China. Severe pandemic lockdowns muted global demand for oil, and are now being lifted. A fast rebound in China’s economy could add another spike to oil prices. Russia is another wild card. Should more Russian oil get boycotted, that would also add pressure.
“That fear is already in the price,” LeBlanc noted. “It’s one of those deals where, if that doesn’t happen, frankly, prices could go back down because there’s a big fear premium that’s embedded in the price right now.”
Even if oil producers can quickly ramp up the supply of oil, there is a refining capacity issue.
B.C., which once hosted several oil refineries, is down to one medium-sized refinery in Burnaby and a smaller one in Prince George. Much of the gasoline and diesel British Columbians consume actually comes from Alberta refineries by train or via the Trans Mountain pipeline.
And that limit in refining capacity is playing out in other developed countries as well.
There has been only one new refinery built in the U.S. since 1977, and in Alberta the new Sturgeon refinery, which opened in 2017, produces diesel, but not regular gasoline.
Globally, refiners are running at capacity. According to the IEA, global refining capacity fell in 2021 by 730,000 barrels a day. The strain on refiners to keep up with the demand for gasoline, diesel and jet fuel adds to price at the pumps.
In an era when the IEA is forecasting the demand for fossil fuels to plateau in 2030, and then start declining in OECD countries, it’s unlikely anyone is going to invest billions in a new refinery anywhere in North America.
“As Mike Wirth from Chevron said, he doubts there will ever be another refinery built in the United States,” LeBlanc said.
The same could be said for Canada. Ten years ago, B.C. newspaper barron David Black proposed a $22 billion refinery, Kitimat Clean, that would bring bitumen from Alberta for refining. The project was shelved. Former Alberta Premier Rachel Notley also tried to raise interest in a new refinery in Alberta, but nothing ever came of it.