Sticker Shock at the Pump: Why are Albertans Facing Soaring Gas Prices?

Albertans have been feeling the pinch at the pump lately, with gas prices seemingly on an endless upward trajectory. The current average price in Alberta is around $1.70 per litre 1, with regional variations. For instance, in Red Deer, prices have been reported as low as 129.9 cents per litre at some stations 2. While these prices might seem reasonable compared to other provinces like British Columbia, where the average is $2.03 per litre 1, they represent a significant increase compared to historical trends and the national average. In fact, the national average gas price in Canada is currently 147.3 cents per litre, with the lowest price in the past month being 147.3 cents per litre and the highest being 151.3 cents per litre 3. Over the past year, the lowest recorded price was 135.8 cents per litre, while the highest reached 172.4 cents per litre 3. This article delves into the complex web of factors contributing to these soaring gas prices, examining the roles of taxes, refinery capacity, and global market dynamics.

Taxes and Fees: Fueling the Cost at the Pump

Although Alberta boasts some of the lowest gas taxes in Canada 4, taxes still play a significant role in the final price consumers pay. In 2017, Alberta's gasoline fuel tax, including the carbon levy, was 17.5 cents per litre 5. However, the provincial government implemented an oil-price-based fuel tax relief program in 2024 6. This program adjusts fuel tax rates quarterly based on the average price of West Texas Intermediate (WTI) oil, as shown in the table below:

Oil Price Range (USD/barrel)

Fuel Tax (cents/litre)

At or above $90

Fuel tax suspended

$85 to $89.99

4.5

$80 to $84.99

9

Below $80

13

6

As of April 1, 2024, the base fuel tax in Alberta is 13 cents per litre 6. However, due to fluctuating oil prices, this tax was fully suspended in November 2022 and was partially reinstated on January 1, 2024, at 9 cents per litre 7. This dynamic tax system aims to provide relief to consumers when oil prices are high, but its effectiveness is debated. Some experts suggest that it doesn't address the root causes of high prices and may not provide substantial relief to consumers 8.

In addition to provincial taxes, Albertans also pay federal taxes on gasoline, which amount to 32 cents per litre 4. These federal taxes include a 10 cents per litre flat tax and a 5% Goods and Services Tax (GST) applied to the entire purchase price 5. To further illustrate the impact of taxes, it's worth noting that British Columbia has the highest gas taxes in Canada, yet the provincial government has been reluctant to implement a pause on these taxes, despite the burden on consumers 9. This contrasting approach highlights the different strategies employed by provinces to manage fuel costs.

To understand the historical context of gas price fluctuations in Alberta, it's crucial to examine trends dating back to 2006. Data from that year shows an average gas price of $6.76 per gigajoule (GJ) 10. This historical data provides a benchmark for understanding the long-term trends in gas prices and how they have evolved over time.

Refinery Capacity: Navigating Bottlenecks and Challenges

Alberta has the largest refining capacity in Canada, with five refineries capable of processing a combined 569 Mb/d of oil 11. These refineries are primarily located in the Edmonton area and Lloydminster 11. Despite this substantial capacity, Alberta's refineries face challenges that can impact gas prices.

Alberta's transition to bitumen-based refining has introduced new complexities and potential bottlenecks in the fuel supply chain. Unlike conventional crude oil, bitumen requires upgrading to synthetic crude oil (SCO) before it can be used as a feedstock for refineries 12. This dependence on upgraders creates a vulnerability in the system, as upgrader outages or disruptions can directly impact SCO production and, consequently, refinery operations. This reliance on upgraders and the potential for disruptions is a key factor contributing to price volatility in Alberta 12.

Another challenge is the limited access to markets outside of Western Canada. While Alberta's oil reaches Ontario and Quebec through the Enbridge Mainline system, reaching refineries in the Atlantic provinces requires more expensive rail transport 13. This limited market access can make Alberta's oil less competitive and potentially contribute to higher prices.

Global Market Trends: Riding the Waves of Uncertainty

Global market trends exert a considerable influence on oil prices, which, in turn, affect gas prices in Alberta. Several key factors are at play:

• Supply and Demand: The fundamental principle of economics dictates that when demand exceeds supply, prices rise. Global events, such as economic growth or political instability, can significantly impact both supply and demand for oil, leading to price fluctuations14.

• Geopolitical Events: Conflicts and political tensions in oil-producing regions can disrupt supply chains and create uncertainty in the market, driving up prices. For example, the ongoing conflicts in the Middle East and Eastern Europe have contributed to price volatility in recent years15. This is not a new phenomenon; history is replete with examples of geopolitical events impacting oil prices. The Arab Oil Embargo of 1973, the Iranian Revolution of 1979, and the Iran-Iraq War of the 1980s all caused significant disruptions to global oil supply and led to price spikes16.

• OPEC Decisions: The Organization of the Petroleum Exporting Countries (OPEC) plays a significant role in global oil supply. OPEC's decisions on production quotas can influence oil prices, with production cuts generally leading to higher prices17. For instance, in July 2024, OPEC's production cuts contributed to a tightening of global oil supply, putting upward pressure on prices17.

In 2024, the oil market witnessed significant volatility. Brent crude oil prices, a key benchmark, rallied to a year-to-date high of $91.13 per barrel on April 5, 2024, before experiencing a decline 15. This volatility reflects the complex interplay of global factors affecting oil prices. Interestingly, while oil demand growth in OECD countries has slowed, non-OECD countries, particularly in Asia, are driving the increase in global oil demand18. This shift in global energy consumption patterns has significant implications for future oil prices and the dynamics of the global oil market.

Expert Opinions and Analysis

Experts offer various perspectives on the causes of high gas prices in Alberta. Some point to the reliance on SCO and the challenges faced by upgraders as a key factor 12. Others highlight the limitations in market access for Alberta's oil, particularly to Eastern Canada and international markets 13. The global market dynamics, including geopolitical events and OPEC decisions, are also cited as significant contributors to price volatility 15.

Adding to the complexity of the issue, some experts suggest that potential US tariffs on Canadian oil could further exacerbate the situation. If implemented, these tariffs could increase the price of gasoline for Americans by as much as 25%, as US refineries rely heavily on Canadian oil imports19. This potential trade barrier highlights the interconnectedness of energy markets and the potential for political decisions to impact gas prices.

Consumer Impact and Affordability

The high gas prices are not just an abstract economic issue; they have real-world consequences for Albertans. Households are feeling the pinch, with increased transportation costs impacting their budgets and potentially limiting their spending on other essential goods and services20. This financial strain underscores the need for solutions that address the affordability of gas for consumers.

Government Initiatives and Policies

The Alberta government has implemented initiatives aimed at addressing high gas prices. The oil-price-based fuel tax relief program, introduced in 2024, provides some relief by adjusting the provincial fuel tax based on the price of oil 6. However, this program has faced criticism for its effectiveness, with some arguing that it does not adequately address the underlying issues contributing to high prices 8.

Conclusion

The high gas prices in Alberta are a result of a complex interplay of factors, including taxes, refinery capacity, and global market trends. While the provincial government has implemented some measures to mitigate the impact on consumers, the issue remains a significant concern for Albertans. Addressing this challenge requires a multifaceted approach that considers both local and global factors.

The transition to bitumen-based refining has created new vulnerabilities in the fuel supply chain, with dependence on upgraders and potential for disruptions. Furthermore, limited market access restricts the competitiveness of Alberta's oil, potentially contributing to higher prices. On the global stage, the rise of non-OECD countries as the primary drivers of oil demand growth presents both challenges and opportunities for Alberta.

Moving forward, potential solutions could include:

• Diversifying refinery feedstock: Reducing reliance on SCO by exploring alternative sources of crude oil or investing in technologies that can process bitumen more efficiently.

• Expanding market access: Investing in pipeline infrastructure to reach new markets, both within Canada and internationally.

• Promoting energy efficiency: Encouraging the use of fuel-efficient vehicles and alternative modes of transportation to reduce overall demand for gasoline.

Ultimately, tackling the issue of high gas prices requires a collaborative effort between government, industry, and consumers to ensure a sustainable and affordable energy future for Albertans.

Works cited

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