Western Canadian gas prices set to drop but volatility still issue: Analyst

By , on August 18, 2015


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CALGARY — Drivers in Western Canada should get some relief at the pumps in the coming days but an industry observer says last week’s 15-cent average spike shows the country needs more refining capacity.

Dan McTeague, senior petroleum analyst at the GasBuddy.com website and a former Liberal MP, reassured Western Canadians that it will soon cost less to fill their tanks following the drop in wholesale gas prices in the United States.

Those prices dipped the equivalent of six cents a litre on Friday and were down another three to four cents in midday trading on Monday.

The decline came when some refineries resumed operations or deferred maintenance plans after a major outage more than a week ago at BP’s Whiting refinery in Indiana caused pump prices to soar.

“It appears there have been alternative sources found at the last moment that might alleviate the strain on the supply picture throughout the U.S. Midwest,” said McTeague.

The BP refinery is a significant source of gasoline for the U.S. Midwest and Western Canada, but it lost 240,000 barrels of its production capacity of 413,000 barrels a day on Aug. 8 after a malfunction.

BP said in a statement that repair work is continuing but would not say how long it expects the work to take.

Along with higher gas prices, the Whiting shutdown increased the discount on Canadian heavy crude prices because the refinery is a major processor of the product.

McTeague says recent events show how Canada has become over-reliant on U.S. refineries and underscore the need for more Canadian capacity.

“These are not one-offs — these are chronic problems related specifically to the shutdown of refineries,” said McTeague. “If the Americans are running short, we should be building refineries also to export.”

But Jason Parent, vice president of consulting for The Kent Group Ltd., says last week’s jump in gas prices was because of a “perfect storm” of problems with refineries running at full capacity during peak summer demand season when BP’s refinery unit shut down.

“I think this is a short-term problem,” said Parent. “These types of jumps in the wholesale price are very, very rare.”

The economics haven’t been attractive enough to justify major new refinery construction in Canada, he added.

“It creates jobs and you keep the oil here, and then the margin just beyond the oil, and for that reason it’s politically popular, but it’s not necessarily popular with the public or the refiners themselves.”