November 22nd, 2018

Refineries hogging profits from gas stations

By Gillian Slade on September 12, 2018.

Eldon Wells and his son Travis stand at the gas pump of their family owned and operated gas station on S. Railway Street. The gas price war in Medicine Hat has them selling gas from less than they're paying for it.--NEWS PHOTO GILLIAN SLADE


gslade@medicinehatnews.com 
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No matter how you feel about the price of gas at the pumps, an analyst with Gas Buddy says the retailer is struggling while the refinery is making the money.

“The money right now that is being made at the refinery level across Western Canada is unprecedented,” said senior petroleum analyst Dan McTeague, a tech company based in Boston that operates apps and websites based on finding real-time fuel prices across Canada and the U.S.

McTeague says Calgary’s wholesale gas price is currently 85.5 cents a litre. Crude is being sold at 56 cents a litre and turned into gasoline for 30 cents, said McTeague. A year ago that margin was about 18 or 19 cents.

“That’s where the money is being made,” said McTeague, noting a lack of competition among refineries.

Meanwhile, gas stations often sell gas for less than they buy it.

When Eldon Wells first bought the All-Niter Snack Store and gas station on S. Railway in 1983, his competition was Safeway and the Co-op.

A typical situation now is buying gas from Shell for 123.8 cents a litre and selling to the public for 123.9 cents.

“We have a gas war going on here,” said Eldon.

Additional costs related to selling gas account for about three cents a litre, said Eldon. There is a two per cent charge on credit card purchases, utilities, maintenance of equipment and the building, and staff wages. The minimum wage increase Oct. 1 will be an additional cost to absorb.

Much of what is paid at the pump is tax. There is 13 cents provincial tax, 10 cents federal tax, 4.5 cents carbon tax, and 5.2 cents GST for a total of 33 cents a litre, Eldon explained.

McTeague believes the minimum retail margin should be 6 or 7 cents a litre.

“You can’t sell your gasoline for under cost in the U.S. but you certainly can in Canada,” said McTeague, a former MP, who tried years ago to point out the short comings of the competition act in Canada. There was no appetite for change.

The situation Eldon finds himself in is typical of markets where you have a player such as Costco that has a different business model, said Jason Parent, vice president, consulting Kent Group Ltd that provides insights, tools and information for the downstream petroleum industry.

“They’re less concerned about making margin on their fuel and more concerned about selling memberships and bringing people into the store,” said Parent.

Smaller gas stations have to adapt by offering other services like car washes in addition to a convenience store, said Parent. It happens in retailing in general.

“We’ve seen in the last five to 10 years a big push for players who are non-traditional. They’re folks whose primary business is something other than selling fuel and receiving huge growth in their market share,” said Parent, who feels the trend will continue.

If big grocery chains sell groceries at less than cost, like they do with gas, they would not survive, said McTeague, and it means the long-term sustainability of small family owned gas stations is at risk.

McTeague would like to see consumers question what the premium is they are paying on groceries to subsidize the loss at the gas pumps. He believes Canada also needs to build pipelines because the industry is looking to make money one way or another.

Eldon made a major investment in the family business and owns everything. Shell only owns the decals, he says.

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