The Final Fifteen Feet of Hose: the Canadian Gasoline Industry in the Year 2000<C>Limited Distribution Publication

The Final Fifteen Feet of Hose: the Canadian Gasoline Industry in the Year 2000<C>Limited Distribution Publication

THE FINAL FIFTEEN FEET OF HOSE The Canadian Gasoline Industry in the Year 2000 January 2001 n Canadians are well served by the current market system that determines gasoline prices. We enjoy some of the lowest gasoline prices in the world. n The rapid increase in world crude oil prices is the main culprit in rising Canadian gasoline prices. Retailers can influence often only approximately 4.5 cents of the pump price of gasoline. n The volatility and uniformity in gasoline prices is a direct HIGHLIGHTS result of the competitive nature of the business at the street level and the unique way that gasoline prices are posted on large signs outside each retail outlet across the country, as well as the volatility of crude oil prices. n Big box operators are a potential source of new compet- ition in the Canadian gasoline marketplace, especially as gasoline becomes one of many products sold at a particular retail outlet. About The Conference Board of Canada The Conference Board of Canada is an independent, not-for-profit research organization with affiliates in the United States and Europe. Our mission is to help our members anticipate and respond to the increasingly changing global economy. We do this through the development and exchange of knowledge about organizational strategies and prac- tices, emerging economic and social trends and key public policy issues. Since 1954, the Board has been committed to researching innovative practices, designing new strategies and providing our members with the most up-to-date infor- mation, analysis and expertise to help them excel in Canada and around the world. About the Economic Services Group The Economic Services Group is a research division at The Conference Board of Canada. The Group's purpose is to address the specific information requirements of the Conference Board's members by conducting financed research. Services include customized economic forecasting at the municipal, provincial and national levels; economic impact analysis; custom-tailored econometric models; consumer and business attitudes surveys; and analysis of the economic implications of changes in public policy. Acknowledgements The study was made possible through funding by Industry Canada and Natural Resources Canada. In keeping with Conference Board guidelines for financed research, the design and method of research as well as the content of this study were determined solely by The Conference Board of Canada. Authors Michael Sperber, Principal Research Associate • Kip Beckman, Senior Research Associate • Frederic Clavet, Research Associate With Contributions From Marie-Christine Bernard, Luc Bussière, Jim Frank and Mario Lefebvre Editing Julie Swettenham • Design & Layout Holly W. Michael Recycled paper ©2001 The Conference Board of Canada* Special Report Printed in Canada • All rights reserved • ISBN 0-88763-494-X *Incorporated as AERIC Inc. The Final Fifteen Feet of Hose: The Canadian Gasoline Industry in the Year 2000 Glossary of Terms ..................................................................................i Calgary, Alberta..................................................................................44 Executive Summary..............................................................................iii Vancouver, British Columbia..............................................................45 Introduction ..........................................................................................vii Smaller Centres ................................................................................46 Purpose ............................................................................................vii Whitehorse, Yukon ......................................................................46 Background to the Study....................................................................vii Sault Ste. Marie, Ontario ............................................................47 Mandate ......................................................................................vii Dauphin, Manitoba......................................................................48 Pre-research Meetings with Stakeholders ..................................viii Smithers, British Columbia ........................................................48 Chapter 1: The Gasoline Industry in Canada from a Chapter 3: Conclusions ......................................................................50 CONTENTS North American Perspective ........................................................1 Canadian Perceptions ........................................................................50 Overview ..............................................................................................1 Consumers..................................................................................50 Upstream ............................................................................................1 Major Integrated Oil Companies and Regional Refiners..............52 Industry Structure..........................................................................1 Independents ..............................................................................53 Crude Oil Prices............................................................................3 Appendix A: Data Characteristics ....................................................56 Wholesale ............................................................................................4 Sources of Data..................................................................................56 Industry Structure—Refineries......................................................4 Price Consistency ..............................................................................56 Wholesale Gasoline Prices............................................................6 Price Volatility....................................................................................56 Empirical Analysis of Wholesale Prices ........................................8 Margins ............................................................................................56 Stakeholder Concerns ..................................................................9 Independents ....................................................................................56 Retail ............................................................................................11 Appendix B: Detailed Methodology and Statistical Results ......58 Industry Structure—Retail Sites..................................................11 Wholesale Regressions......................................................................58 Retail Gasoline Prices ................................................................21 Canadian Wholesale Prices................................................................59 Empirical Analysis of Retail Prices..............................................29 Retail Regressions ............................................................................59 Stakeholder Concerns ................................................................30 Price Asymmetry................................................................................66 Chapter 2: Comparison of Canadian Centres ................................33 Margin Analysis ................................................................................66 St. John’s, Newfoundland ..................................................................34 Long Weekends ................................................................................67 Charlottetown, Prince Edward Island ................................................35 Cross-Subsidization ..........................................................................68 Saint John, New Brunswick ..............................................................36 Price Volatility....................................................................................69 Halifax, Nova Scotia ..........................................................................37 Appendix C: Review of Literature ....................................................70 Quebec City, Quebec..........................................................................38 Canadian Studies ..............................................................................70 Montreal, Quebec ..............................................................................39 American Studies ..............................................................................73 Ottawa, Ontario ..................................................................................40 Asymmetry Studies............................................................................74 Toronto, Ontario ................................................................................41 Studies on Below-Cost Sales Legislation ..........................................75 Winnipeg, Manitoba ..........................................................................42 Appendix D: List of Stakeholders Consulted ................................77 Regina, Saskatchewan........................................................................43 INDEX OF TABLES, CHARTS AND EXHIBITS Chart 28—Retail Price for Ottawa (Ex-tax)............................................................40 Chart 29—Retail Margin for Ottawa......................................................................40 Table 1—Gasoline-Producing Refineries in Canada ..............................................5 Chart 30—Retail Price for Toronto (Ex-tax) ..........................................................41

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