Why do gasoline prices differ across Canada? | General financial discussion | Discussion forum

That is a nice chart, but of course, doesn't get into some specifics why, for example, crude varies in price by province and/or why refining margin varies. Here are a few sound bites:

Western Canada has the lowest crude oil price entering refineries because that is where the production is and it is pretty much landlocked. Eastern Canada imports most of its oil (wonder why QC refuses to support Energy East....?)

Refining margins vary due to the type of crude they refine (heavier crudes cost more to refine) and size of refinery. Irving's NB refinery (and that accounts for Maritimes in general) is best positioned.

Marketing margin is essentially distribution cost getting products from refineries to end user. The cheapest price of gasoline in Canada are the gasoline stations just across the road from Edmonton/Strathcona refineries.

Taxes speak for themselves. BC has a carbon tax on its products and I believe the Vancouver area has (or did have) a surcharge to pay for an expanding Sky Train.

Gasoline retail prices at the pump are also tempered by the wholesale price of imported gasoline into the lower Mainland BC and Central Canada (we are net importers of gasoline in those areas in particular).

Simple, isn't it!

Bill said
I live a couple hours west of GTA and it's usually (though not always) about 5 cents/litre cheaper here. So local market differences must have something to do with it too.  

Local market competitive practices can make a difference almost everywhere. Margins can be tight in areas with numerous stations but can be strong (opportunistic) in areas with limited service and/or high volume corridors/locations. It can be a simple as an opportunistic location on the main highway (high) versus the station in the local town a mere few km away (lower). The highway strip in Canmore, AB is an example of 'opportunistic' pricing where I never want to be 'low on gas'.

Remember the vast majority of gas stations now are independently owned, especially in Canada, and set their own prices. And those that are not mom and pop, are owned by corporations like Alimenation Couche-Tarde and Parkland Fuels.

And that information is somewhat stale. There were large sales of retail stations in 2016 and 2017 that will reduce the 19 percent number substantially more by year end 2017.
- Imperial (Esso) sold about 500 stations in 2016
- Parkland bought all of Chevron's downstream businesses
- Loblaws sold 213 stations to Brookfield (albeit it would have been in the independent numbers to begin with).
- The list goes on. One worry might be the pricing power the 'consolidators' might develop.

http://www.cbc.ca/news/busines.....-1.4075290

The big exception is Suncor, to my knowledge, still owns its Petro-Canada chain of 1500 gas stations. It is the one hold out, controlling circa 12% of Canadian gas stations. It will have to continue to re-evaluate that model because I think the big independents will squeeze that business AND Suncor can make a much better return (ROE/ROCE) elsewhere in its business.

AltaRed said

Remember the vast majority of gas stations now are independently owned, especially in Canada, and set their own prices. And those that are not mom and pop, are owned by corporations like Alimenation Couche-Tarde and Parkland Fuels.

They are more independent than they look. Lots of times, the new owners continue to operate the stations under their original brand.

I didn't realize that Sobeys owns all the Shell retail gas stations in Atlantic Canada and Québec. This is from the December 2011 Reuters news release Sobeys to buy 250 Shell gas stations in Canada:

Sobeys, Canada’s No. 2 grocer, will take over all of Shell’s retail outlets in Atlantic Canada and the province of Quebec. …

The company will continue to operate the outlets under the Shell banner. It aims to leverage Shell’s strength as a brand against Sobeys’ name recognition in the convenience store business, Sobeys Chief Executive Bill McEwan said in a statement.
…
The Sobeys-Shell deal is expected to close by the end of March 2012.
…

Indeed it could be. I purposely left that out of my posts so as not to complicate it even further.

Loonie said
Funny how the word "profit" has not appeared in a thread about prices. A few posts came close, but let's call it what it is. They will charge whatever they can. Simple!  

Of course there is profit in each step of the process. A crude oil producer has to make enough profit to provide a return on investment to its shareholders. ROE/ROCE is often single digit though investors really shouldn't accept anything less than mid to high double digit returns. But refiners will buy their crude as cheap as possible so they play one crude oil producer off against an other. Crude oil producers are 'price takers' rather than 'pricesetters' which is true of any commodity. Profit margins are thus slim as we know ourselves from our own Canadian producers.

Then the refiners who have bought crude as cheaply as they can want to sell the finished products at a high enough price to also make a return of investment to their shareholders. But the buyers of refined products also want to get their gasoline, diesel and jet fuel as cheap as possible so the distributors and retailers shop around (to some degree) for the cheapest fuel. Refiners long term rarely make better than mid-single digit returns (ROE/ROCE) because refined product is so portable by tank car or truck and it is easy for buyers of refined product to shop. Refining companies are one of the worst investments an investor can make (like airlines). This is why a lot of the majors have sold off refineries to independents. IOW, profit margins are slim on a business cycle basis.

Then the retailers have to compete with each other to get our own dollars. They are best positioned to take advantage of margins when they can, but they also face lean times when demand is weak. I think the average margin is in the order of 10 cents/litre. They make more from their convenience stores than from the pumps. We see 'equal' pricing as a conspiracy since we believe they are gouging us at the same price. Sometimes that is true. Most often it is not because fuel margins are so slim. One station who is in a position of market strength (usually location) sets the pace. All others follow because: 1) they have no choice in order to attact customers regardless of their margin, and 2) they cannot undercut if their margin is lower than that of their nearby competitor. Talk to station owners sometime about their ongoing battle. Few of those folks drive fancy cars and have big homes. They are just small business owners.

One way to get some insight into the retail gasoline business is to go though all the gory details of Parkland Fuel financial reports, or those of Alimentation Couche-Tarde. They will give you insight into where their profits come from.

Gas stations have always been a 'hate' relationship with the public. But no predatory pricing study/investigation has ever proven price gouging or uncompetitive price setting. It is simply because it is not true....within the margins of a few cents per litre.

Aw, those poor capitalists and investors. Tough road, eh?
It will no doubt be a relief to all when the oil and gas industry is completely eclipsed by alternative energy sources. The tar sands and pipeline debates will disappear and everyone will be happy because it turns out nobody was making any money off it anyway!
As if.