If you need to gas up in Vancouver and can wait a couple of days, you might want to wait until Saturday.
A bit of relief from record high gas prices could come Saturday, predicts Gasbuddy petroleum analyst Dan McTeague.
That’s the good news.
The bad news is that British Columbians can expect to continue paying record high gas prices well into summer, and part of the reason is a local oil supply shortage, due to constraints on the Trans Mountain pipeline.
“It gets worse in exactly three weekends from now, when the U.S. kicks off the Memorial Day long weekend,” McTeague said.
“That, for us in the business, is kick-off for the summer driving season. And that usually means higher demand and often issue with supply. I think it’s going to remain in this vicinity of about $1.65 (per litre), best case scenario, probably till mid-summer.”
As for the supply issue, Marc Lee, an economist for the Canadian Centre for Policy Alternatives, has argued that there is no supply shortage, and ascribes the high prices British Columbians pay for gasoline to price gouging by refiners.
But an affidavit filed by the B.C. government in its application to Alberta courts to have Alberta’s Bill 12 quashed suggests there is a shortage.
It notes that the Parkland Fuel Corp. (TSX:PKI) refinery in Burnaby has been running at 80% capacity, due to a lack of oil supply, and that below that number, it becomes unsafe to operate.
The B.C. government affidavit – posted on Twitter by Global BC reporter Richard Zussman – confirms what analysts like McTeague have been trying to tell British Columbians since last year: British Columbia is in a precarious situation when it comes to security of gasoline and oil supplies, and not just because Alberta Premier Jason Kenney has threatened to throttle supplies to B.C.
As of today, May 2, gas prices in Vancouver are ranging from $1.55 to $1.72 per litre, and averaging $1.70 per litre. McTeague predicts gasoline prices will drop by about $0.03 by Saturday.
“We are looking at no change at the pumps tomorrow, but then a 3 cent a litre drop to 168.9 (cents) for Metro Vancouver on Saturday,” McTeague said. “That will be the cheapest prices we’ve paid since April 11.
“Those gas stations that are the deep discounters, they will drop to as little as $1.56 (per litre,)” he added.
He’s not sure why spot prices have suddenly dropped, but expects it’s because American refineries in the Pacific Northwest are all back online, following seasonal turnarounds and prolonged maintenance shutdowns.
“I think the bottom line is that Pacific Northwest refineries are picking up momentum. They’re starting to get back into full production,” McTeague said.
The same cannot be said for the Parkland fuel refinery, though, according to the B.C. government’s affidavit.
“Parkland is currently operating at about 80% of capacity because of an inability to access sufficient crude oil,” says Michael Rensing, director for the B.C. government’s Low Carbon Fuels Branch, in his affidavit.
That is dangerously close to the minimum the refinery needs to operate safely. According to Rensing, the refinery “cannot operate safely if the crude supply falls below 40,000 barrels per day.”
Rensing’s numbers don’t line up with what Parkland itself recently reported. In its management and discussion analysis from May 1, 2019, Parkland reported its Burnaby refinery is operating at 92% capacity.
Parkland has not yet responded to a request from Business in Vancouver to explain the disparity between its own numbers and Rensing’s.
The affidavit points out just how vulnerable B.C. is, however, in terms of energy security. It gets 80% of its gasoline, diesel and jet fuel from Alberta, either from the oil that is refined locally in B.C., or from Alberta refineries. It typically gets less than 10% from Washington, according to the National Energy Board.
Even a small disruption in the oil or fuel supply can result in dramatic price spikes, as public policy professor Marvin Shaffer recently pointed out in a blog post.
Should Alberta Premier Jason Kenney ever make good on his threat to curtail the supply of oil and or refined fuels to B.C. – in retaliation for trying to prevent the pipeline's expansion – British Columbia would find it difficult, if not impossible, to find an adequate alternative supply.
But even if Kenney doesn’t use Bill 12, British Columbians are already paying the highest gas prices in North America, thanks to high taxes on gasoline, a low carbon fuel standard, and a pipeline that is strained to capacity.
“That put to rest any nonsense that there’s no shortage,” McTeague said of the Rensing affidavit. “Now the real question is: ‘Why in God’s name are you, Horgan and Company – blocking this pipeline?' You’re contributing to the shortage.”
Last year, when Bill 12 was introduced, one Alberta economist mused that it is hard to hold a port city like Vancouver hostage, since it could simply bring in oil by tanker and refined fuels by barge.
Premier John Horgan has also suggested that B.C. could rely on Washington State Governor Jay Inslee to bail B.C. out with supplies of refined fuels.
The problem with that idea, however, is that Vancouver’s ports are not set up to manage a serious supply shortage, as Rensing points out in his affidavit – something that was also pointed out last year by Blair King, who blogs about local energy issues.
“There is inadequate infrastructure in place in British Columbia to transport, receive, store and then distribute large quantities of fuels acquired from a market other than Alberta,” Rensing says in his affidavit.
“Ports in British Columbia are not equipped to receive large scale shipments of refined fuels by ship or marine barge.”
Rail is already at capacity, he notes, so any increased shipments by rail would leave rail shipments of other products “stranded,” and moving gasoline by truck would result in a big increase in truck traffic on the roads, adding to congestion.
Rensing’s affidavit even raises the prospect of gas rationing, since a major disruption in fuel supplies and “rapid price increases” would result in gasoline having to be rationed for police and other emergency services.
Typically, B.C. gets slightly less than 10% of its refined fuels from Washington State. But in 2018 it spiked, as increased crude oil for export flowed through the Trans Mountain pipeline – some of it destined for China – reducing the amount of refined fuels that could flow on the pipeline from Alberta.
In 2018, B.C. imported 4.8 million barrels of gasoline – about 13,000 barrels per day (bpd) – from Washington, McTeague said, adding: “That’s just of gasoline.”
He said the numbers have likely dropped off somewhat in 2019.
Statistics Canada data shows imports from Washington of refined fuels (gasoline, diesel, jet fuel), light oils for blending and biodiesel jumped from 719 million litres ($520 million worth) in 2017 to 921 million litres, worth $713 million, in 2018.
