CALGARY - Statistics Canada says gasoline consumers in Central and Eastern Canada are being hit harder than those in the West because of a growing price gap between the types of crude refineries in both parts of the country use.
"For much of the last decade, changes in gasoline prices have been similar across provinces," Statistics Canada said in the study released Friday.
A reason for these comparable price movements was that changes in the cost of crude oils had been similar, something that is no longer the case.
"However, starting in 2011, divergence between provincial gasoline price indices expanded and became the largest variation observed in the last decade."
In the West, gasoline is based on the North American benchmark, West Texas Intermediate crude, which has been suppressed lately by a lack of pipeline capacity and growing Canadian and U.S. supplies. That crude is landlocked, so it can't be easily transported to the most lucrative markets.
Refineries in the East import a lot of their crude from overseas, which has been driven higher by conflicts in the Middle East and growing demand from China.
That crude is based off of Brent, a key international oil benchmark, which can move easily around the world by sea. Some markets in Ontario use a combination of both imported and western crude.
In September 2011, the Brent-WTI differential was almost US$30 a barrel and then averaged around US$18 by Sept. 2012. Based on the trading of both crudes for January delivery Friday, the price gap is now about $23.
Oil prices account for about half of the price of gasoline, with local market dynamics and provincial tax regimes also affecting the final pump price.
In Statistics Canada's 2009 Consumer Price Index, gasoline made up 5.8 per cent of an average Canadian's household budget, meaning the growing price gap is likely to have an impact on the pocketbooks of Eastern Canadian consumers.
Gasoline prices across Canada generally follow markets directly south of the border, said Roger McKnight, a senior petroleum adviser at En-Pro International.
For instance, the B.C. Lower Mainland follows Seattle wholesale prices, gas sold between the Rockies and Thunder Bay, Ont. tracks WTI, and anything east will track New York Harbour gasoline futures.
"Unfortunately refineries east of the Ohio valley can't really process Western Canadian Select (from Alberta) or any heavy sour crude. They have to use a lighter blend or a sweeter blend, which is Brent," said McKnight.
"So the eastern part of the United States and Canada imports 700,000 barrels a day of much more expensive crude than Western Canada."
The trend has caused headaches for Alberta oilsands producers, who are faced with a second discount because the crude they produce is much tougher to refine than WTI, which is light and sweet.
That's why many companies eagerly support pipeline proposals to get that landlocked crude to tidewater, whether it be to the Pacific or Atlantic coasts. They've also been anxiously waiting for U.S. President Barack Obama to approve the Keystone XL pipeline, which would connect oilsands crude to the U.S. Gulf Coast.
Proposals to get oilsands crude to the West Coast, where it can be sent to Asia, have stoked concerns in British Columbia about the environmental harm that could arise from a spill. The prospects of those proposals remain far from certain.
There are at least two proposals to get western crude to eastern markets by reconfiguring existing pipelines. It was a topic Alberta Premier Alison Redford and Quebec Premier Pauline Marois discussed Thursday while in Halifax for a meeting of Canada's provincial leaders.
McKnight said the eastern proposals, if they go ahead, will have two key benefits.
"It will benefit the consumer because the input costs on your feedstock will be lower" at refineries, leading to lower gasoline prices.
"And it will benefit the oilsands and Alberta because that discount off of WTI will shrink because now that product is moving rather than sitting in a pipeline somewhere doing nothing, which is happening now."
1. Crude Oil Prices
It starts with crude oil. Although Canada may produce more oil than it consumes, the country is at the mercy of global markets for the commodity. Increased Middle East instability, sparked by popular uprisings, has lead to concerns about supply. Better-than-expected economic growth, especially in developing nations such as China and India, has also increased demand. (AP Photo/Hasan Jamali)
2. Refining Oil into Gas
The next link in the supply chain is refining. In order to turn thick, black crude oil into useful products such as gasoline, diesel, heating oil and jet fuel, it must be sent through a mind-boggling array of pipes and tanks, heaters and condensers to sort the components of the substance from lightest to heaviest. This is a complex and costly process, and is paid for by what is known as the "crack spread," or refining margin. This represents the difference between prices fetched for the products produced, and the cost of crude oil inputs.. (AP File Photo)
3. Transportation to Retailers
Once the oil has been refined into gasoline, it must be transported to retail outlets across the country. This is accomplished through a network of 23 terminals - from St. John's to Nanaimo, B.C. -- forming the backbone of the distribution network. (AP Photo/Jessica Hill)
4. Retail Mark-Up
The retail mark-up averaged 7.6 cents per litre in April. This national average masks wide variation, from lows of 4.6 cents in Calgary up to highs of 25.8 cents in Whitehorse, according to Kent Marketing Services, an industry consulting group. (AP Photo/Orlin Wagner)
5.Taxes at the Pump
Emily Corbett of Mechanicville, N.Y., pump gas at a station in Mechanicville, on Wednesday, May 11, 2011. New York, Indiana, Illinois and New Hampshire are among the first states talking about temporarily suspending part or all of the state and local taxes that can add 14 cents to nearly 50 cents to a gallon of gas. (AP Photo/Mike Groll)