With crashing crude oil prices worldwide, the price at the pump has seen a drastic drop as well. But discerning Squamites have likely noticed that while the prices are lower at our local stations, they still aren’t as low as in other communities.
This week the price at most pumps in Squamish for regular unleaded gasoline at a self-service filling station was 97.8 cents per litre, while in Abbotsford, for example, most stations were selling for 89.9 cents per litre – a difference of nine per cent.
Both Squamish and Abbotsford are on major highways and both communities are outside Metro Vancouver – where the public transit agency TransLink levies a nine-cent-per-litre tax on gasoline to help pay for transit.
“We usually use gas stations when we teach basic economics as an example of perfect competition,” said Kaija Belfry Munroe, a Quest University political scientist who specializes in energy politics.
At its most basic, perfect competition is when many companies compete to sell an identical product.
Munroe said the three stations located near each other at Garibaldi Way and Highway 99, Husky, Petro-Canada and Chevron, illustrate the situation well.
“They all go out and put their prices down because they have lower gas prices and then they kind of look at each other and see, oh that one is lower so I will go lower… until they hit this point that they can’t go lower because their costs would put them out of business,” Munroe said.
Perfect competition means if one of those three gas stations raised its prices, it would go from getting one-third of the demand to none, Munroe said.
The price is also set for Squamish stations, as elsewhere, by supply and demand.
Squamish, Munroe said, has fewer gas stations per capita than Abbotsford or many other communities around Metro Vancouver.
The low cost of gas is good news for independent stations, according to Tricia Anderson, of the Canadian Independent Petroleum Marketers Association (CIPMA), which represents stations in the market that sell gas but do not own refineries.
“The operating margins for the independent marketers don’t vary wildly year over year,” she said, adding that in Canada overall the margins shifted from seven cents per litre to a little bit over eight cents per litre throughout the past year.
“They do better though because credit card fees are a huge portion of transactions.… Credit card companies charge a percentage of the transaction value so as the transaction value declines, that is much better for our members because they are paying lower fees,” she said.
When gas was at about $1.30 per litre, CIPMA members were paying a third of their operating margin just to process each sale, she said.
According to Munroe, eventually the price of crude oil – and so gasoline – will go up, but the question is how long that rise will take.
The drop in oil actually means consumers pay a higher percentage of tax, according to a Chevron representative.
“Crude oil is the largest input cost into the refining process,” spokesman Adrien Byrne said in an email. “Competition has driven these reduced costs and savings on to customers at local Chevron retail stations. However, most fuel taxes – such as Federal Excise, Carbon Tax, and Provincial Motor Fuel Tax – remain at a fixed per-litre rate and have not declined in conjunction with the crude oil price. As a result, as fuel production costs have declined, the percentage of taxes paid by consumers at the pump has actually increased.”
Munroe said the global price is low for several reasons, including an overall lowering of demand for oil and gas. Traditionally OPEC would decrease production at this point, but Saudi Arabian leaders have so far not budged.
“In continuing their high supply they are allowing the price to decrease drastically enough to keep producers in the Canadian North out of the market – or at least that is what they are hoping.”
The result of the continuing lower prices may be good for Squamish residents looking to fill up, but it is hard on those who work in the oil and gas industry.
Suncor Energy announced in January it was laying off 1,000 workers, citing plummeting crude prices. Earlier in January, Shell Canada announced it was cutting about 300 workers at its Albian Sands operation north of Fort McMurray.
The situation is concerning from a national economic perspective, Munroe said. “Since about 2008, we have kind of reconfigured our national economy around this one staple resource of oil.”
