Gas Prices

[milomilo]

Originally Posted by whatnext

It says the company's are behaving in the manner of an oligopoly.

Maybe. So what? What is so different with the Vancouver/BC market that causes a lack of competition vs other areas? And besides, you must have missed the part where it says 'no evidence of collusion'.

Originally Posted by whatnext

The report also lays bare the lie that twinning Transmountain will reduce BC gas

No it really doesn't. If anything it says the opposite and I've no idea how you came to that conclusion.

[whatnext]

Originally Posted by milomilo

Maybe. So what? What is so different with the Vancouver/BC market that causes a lack of competition vs other areas? And besides, you must have missed the part where it says 'no evidence of collusion'.



No it really doesn't. If anything it says the opposite and I've no idea how you came to that conclusion.

Simple, that drop in refined products being shipped on TMX was because the operator knew they could get better returns on shipping crude. The same will apply once the expansion is built and they start shipping more to Asia.

[milomilo]

Originally Posted by whatnext

Simple, that drop in refined products being shipped on TMX was because the operator knew they could get better returns on shipping crude. The same will apply once the expansion is built and they start shipping more to Asia.

Not until capacity is constrained again.

I thought dirty Alberta crude was worthless anyway and no one would want to buy it?

[DLLB]

Gee, no word on the real impact of taxes on the prices. NO surprise at all. When it doesn't look good, have an inquiry to arrive at the result you want . Great way to divert attention from the fact that you are part of the problem.

[MalcolmTucker]

Originally Posted by whatnext

Simple, that drop in refined products being shipped on TMX was because the operator knew they could get better returns on shipping crude. The same will apply once the expansion is built and they start shipping more to Asia.

The operator does not make a different amount of money based on different products.



Pipelines have common carrier provisions, essentially any user can nominate product onto them. Then if the nominated product is more than capacity, a formula is used to allocate capacity among the nominees. If every month the product shippers are being allocated 10, 20, 30% less than they wanted, less product of a certain type will ship.



The pipeline company doesn't have a preference for what they carry. They make a regulated rate of return.

[bluefox]

Originally Posted by DLLB

Gee, no word on the real impact of taxes on the prices. NO surprise at all. When it doesn't look good, have an inquiry to arrive at the result you want . Great way to divert attention from the fact that you are part of the problem.

What, are you not capable of reading the stickers on every single gas pump in Canada that break down the various taxes you pay in cents per litre, in a simple to understand and transparent way? You needed a report to tell you?

No wonder these guys can get away with tacking on an extra mark-up. It's that darned Long Weekend Gas Tax they keep bringing in for a couple of days that's the real culprit.

[WestCoastEcho]

Originally Posted by whatnext

It says the company's are behaving in the manner of an oligopoly. The report also lays bare the lie that twinning Transmountain will reduce BC gas prices:

VICTORIA — Premier John Horgan got the answer he was looking for Friday, via a report from the inquiry into gasoline prices that said British Columbians were being overcharged at the pump by almost half a billion dollars a year.

The B.C. Utilities Commission delivered that finding in a 100-plus page report that deftly cut through the complexities of the gasoline marketplace.

The inquiry found no evidence of collusion in fixing prices. But it did find the industry was behaving like an oligopoly, with a limited number of players and less than competitive pricing of the product.

Bottom line: there is an unexplained markup of 13 cents per litre on gasoline in southwestern B.C., and six cents in the northern part of the province.

Moreover, for the market in and around Vancouver, the markup is determined on the basis of what inquiry chair David Morton called a “tail wags dog” calculation.

Only about three per cent of the region’s gasoline supply comes from the U.S. Pacific Northwest. But the spot market in Seattle is used to price the remaining 97 per cent....

https://vancouversun.com/opinion/columni...s-getting-hosed-at-pumps-via-big-markups

Vaughn Palmer obviously didn't understand the report.

The extra 13 cents a litre is not what the BCUC called an unjustified premium, they just said it was unexplained, due to the fact that the BCUC doesn't have the information to make an assessment. The "premium" comes from the marginal source of supply, which always sets the price of a good.

In the report the "premium" addresses the differential between typical cost and the marginal source of supply and the fact that (as happens in EVERY market) the price of the product for the entire market is based on the price of the marginal source of supply for the product.

For example, you buy a box of widgets from supplier at $70 a box for resale at your store.

However, this supplier on average can only supply you 60% of your needs on a daily basis, so you are forced to make up the remaining 40% by buying from another supplier; this supplier is able to sell you a box of widgets at $100 a box.

So, when you are pricing the widgets at your store, you price your widgets at the marginal source of supply, at $100, not at $70 because the supplier that's selling you the widgets at $100 is your marginal source of supply.

You don't want a situation where if you did try to price the widgets based upon the $70 price, and your supplier that is selling you at $70 suddenly can't supply you at the volumes you require, you don't want be taking a massive loss on the widgets. So you price based upon the $100 price.

[WestCoastEcho]

Originally Posted by milomilo

Maybe. So what? What is so different with the Vancouver/BC market that causes a lack of competition vs other areas? And besides, you must have missed the part where it says 'no evidence of collusion'.



No it really doesn't. If anything it says the opposite and I've no idea how you came to that conclusion.

Adam Stirling pointed this out on Twitter when you look at when gas prices spike:






Compare the May 2018 number on shipments and the historic price of gas in the Lower Mainland...

Gee, when refined product shipments drop, prices spike...

Anyone doesn't think we don't have a supply shortage that's causing the high prices?

[jawagord]

Originally Posted by MalcolmTucker

The operator does not make a different amount of money based on different products.

Pipelines have common carrier provisions, essentially any user can nominate product onto them. Then if the nominated product is more than capacity, a formula is used to allocate capacity among the nominees. If every month the product shippers are being allocated 10, 20, 30% less than they wanted, less product of a certain type will ship.

The pipeline company doesn't have a preference for what they carry. They make a regulated rate of return.

TMP toll rate (set by NEB?) is variable and are lowest on refined products which may in part influence what TMP ships due to the fact the pipeline is at capacity and over subscribed but the decisions on what is shipped are market based, i.e what the sellers and buyers want shipped and are willing to pay the tolls for.

If TMX gets built heavy crude oils will be transported in the new pipeline, freeing up capacity on the existing line for more refined products and light oil from Alberta. There is a special place in economics for those who think increased supply from a low cost producer won’t lower gas prices, it’s called the BC ND’s!

Of the 288,000 BPD going through TMX, the majority is light oil and while 53% of this goes to Washington State, it’s only about 1/4 of WS refinery needs, the other 3/4 comes in on ships through the Salish Sea and on trains. If those refineries had access to more Alberta crude through an expanded TMX that will put a downward pressure on Pacific NW gas prices particularly when it is in competition with more refined products from Alberta.

Trans Mountain currently operates under a three-year Incentive Toll Settlement (2016-2018 ITS). Tolls have fluctuated as over or under-recoveries of revenues are transferred to future years. Tolls are based on the quality of crude oil, the volumes and the specific pipeline path. Since January 2015, consideration of a shipper's previous delivery volumes has helped determine fair and equitable allocation of Trans Mountain system capacity.

https://www.cer-rec.gc.ca/nrg/ntgrtd/ppl...smntn-eng.html?=undefined&wbdisable=true

https://www.transmountain.com/product-destination

[MalcolmTucker]

The difference in tolls accounts for the difference of quality of different products, mostly because different products cause different amounts of corrosion, leave different amounts of deposits that need to be cleaned out, and require different amount of effort to pump.

[milomilo]

So what's the reason for the preference to ship crude vs refined? The report mentioned arbitrage, but didn't expand on this as far as I could see.

[WestCoastEcho]

Originally Posted by milomilo

So what's the reason for the preference to ship crude vs refined? The report mentioned arbitrage, but didn't expand on this as far as I could see.

Basically, a shipper can get crude off the Trans Mountain pipeline for a lower price, and deliver it for a much higher price elsewhere.

In other words, if a shipper can buy up crude foe $35 a barrel in Vancouver, but deliver it to say, Texas for $70 a barrel, that shipper is pocketing $35 a barrel, minus cost of delivery.

Also, looking at the global crude market, there is a fairly big hole being left as a result of Venezuelan heavy crude disappearing off the market due to the economic situation in that country. As refineries are not easily or cheaply converted from one type to another (and it costs just as much to convert back), there is increasing demand for heavy crude oil to to replace the lost capacity.

[WestCoastEcho]

Another thing being pointed out:

As noted by the BCUC, oil prices between Vancouver and Seattle generally stayed pretty tied together until 2015, where the price divergence sharply increased.

Based upon what we already know, two major factors are at play:

1. Decrease in refined fuel shipments. This can be partially explained by how the pipeline is dividing up allocations to various shippers, as apparently, in 2015, Trans Mountain changed how the allocation formula worked:

From page 41 of the report:

A key area of change to the allocation method in 2015 was the transition to a historical averaging volume allocation process. This results in the creation of an ultra-competitive aftermarket for line space which,as stated by Parkland,can reach as high as 7 to 34 times the base tariff

Suncor also indicated the following as well during their oral hearing as a refined product shipper:

The challenge faced by refined product shippers was explained by Suncor within the oral hearing. The capacity on the TMPL can move up or down dependent upon the amount of heavy versus light crude being shipped based on two factors; the nominations and the amount of crude that is diverted from water (through Westridge Marine Terminal) to land as a result of the aftermarket. Suncor explains that when aftermarket line space is purchased by crude line shippers it dilutes or reduces Suncor’s line space allocation. Further, when market conditions are such that refined product from Alberta is limited, Suncor reports that it may elect to ship its Edmonton refined product eastward and import product by sea to Vancouver where they have facilities equipped to handle marine delivery. In such instances Suncor will not use all of its line space. Instead it will nominate a smaller volume for shipment and make the balance available to the pool where it is likely picked up by crude shippers who are prepared to pay a premium. Under the allocation rules, the space Suncor has given up will be credited to the supplier that picked it up and Suncor’s future allocation will potentially drop due to a change based on its average allocation. As a consequence, it is Suncor’s position that crude shippers would have the upper hand in current circumstances with respect to maintaining and growing their line space allocations.

Second, in 2015, BC’s low carbon fuel standard ramped up as well; this probably caused knock on effects at the storage facilities as now the storage facilities now have to allocate additional storage space for ethanol to blend into the fuel in order to meet the low carbon fuel standard. Coupled with decreasing refined fuel shipments, you get a double whammy in price increases.

[milomilo]

BC bought into the ethanol scam as well? Oh dear. They don't even have any corn farmers of their own that need propping up.

[MalcolmTucker]

Originally Posted by milomilo

So what's the reason for the preference to ship crude vs refined? The report mentioned arbitrage, but didn't expand on this as far as I could see.

More shippers are nominating crude. In a simplistic explanation (because there are complicated formulas for doing this set by the NEB that I have long since forgotten), if 90% of the nominations on a apportioned system are crude, 90% of the allocated capacity will be crude. No single shipper is getting their desired capacity, and all nominees have their allocations a X% of their nomination.

[milomilo]

I see. I assume the excess refined product left in Alberta is then relatively easier or cheaper to ship elsewhere?

[MalcolmTucker]

Originally Posted by milomilo

I see. I assume the excess refined product left in Alberta is then relatively easier or cheaper to ship elsewhere?

Well, it can be loaded on railcars and go to BC, or anywhere.

[milomilo]

Originally Posted by MalcolmTucker

Well, it can be loaded on railcars and go to BC, or anywhere.

That would be the same for crude though? You can even put relatively more bitumen in a railcar than a pipeline I believe as you don't need to dilute it so much. Then again, there's probably many more places to send refined product, so easier to find a buyer.

Obviously, the numbers speak for themselves, just interesting how things play out when capacity is constrained.

[MalcolmTucker]

Originally Posted by milomilo

That would be the same for crude though? You can even put relatively more bitumen in a railcar than a pipeline I believe as you don't need to dilute it so much. Then again, there's probably many more places to send refined product, so easier to find a buyer.

Obviously, the numbers speak for themselves, just interesting how things play out when capacity is constrained.

Yes. For the first. The second, it depends on many factors. If you use special cars, and have special offload and load facilities you don't need to dilute as much or at all. With all things, it comes down to cost. Gasoline requires the least specialized facilities, so would be the cheapest to move, to the point where you wouldn't even take much of a hit by using a broker. At least until it starts to go bad, gasoline is an easier product to sell for sure.

[milomilo]