Breakenridge: Has ethanol been a driving factor in gasoline prices?

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So, if I understand correctly, Alberta’s gasoline retailers recently decided they would be the greediest in the country, but then suddenly and randomly changed course to be the least greedy again (perhaps because we knew their greedy ways! !).

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Do I have that right? Is this an explanation that actually seems plausible and sensible to people?

It is very strange to see that this demonization of oil and gas companies has become fashionable in a province where we would normally get angry about that kind of thing. It’s also quite strange to see conservatives cast aside their skepticism of government intervention in the market instead of a strange new enthusiasm for dictating acceptable prices and profit margins for private industry.

Just so everyone is clear, as of last week the average price of gasoline per liter in Alberta was lower than in any other province in the country. That seems pretty unrelated to the recent scandal in this province over gasoline prices.

Now, to be fair, Alberta hasn’t had the lowest gas prices in the country in recent weeks. In fact, at one point, the average price was lower in Toronto than it was in Calgary or Edmonton. This seemed to be the spark that ignited the political fury, especially as the benefit of the gas tax cut seemed to have vanished (although, interestingly, that wasn’t true for diesel).

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On July 22, Prime Minister Jason Kenney announced that it was directing Service Alberta to examine potential responses under the Alberta Consumer Protection Act. He also asked the Canadian Competition Bureau to investigate the possible price fixing. As Kenney said, “We won’t take any games on this.”

Some proposed to go even further. UCP leadership candidate and Kenney’s nemesis, Brian Jean promised to end to “increasing gasoline prices in Alberta,” which could even include “legislating retail margin caps.”

Jean is far from the only person tossing out the word “gouge” in the context of gas prices, but you’d think he’d know better than to use such inflammatory language. In any market or sector where there is no monopoly, the word “gouge” has no meaning.

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Why, then, have prices and profit margins increased to the extent that they have in Alberta? While those profit margins tend to be in the neighborhood of eight to 10 cents per liter, they have reached 40 cents per liter in recent weeks.

me spoke last week with Vijay Muralidharan, CEO of R Cube Economic Consulting. When he realized where prices and profit margins were, he decided it was time to take a closer look at all the data. Beneath the consumer fury and political posturing, something interesting has been happening.

It’s not just in Alberta that retail prices and margins have risen: the same has happened in Kamloops and much of inland BC. Those places have had the same problems as retailers in Alberta in accessing ethanol.

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There is a requirement that gasoline be blended with ethanol, and since March, shipments of ethanol to Alberta and the interior of British Columbia, arriving by rail from the US, have been delayed. That meant a much higher cost for retailers to get that ethanol here. It’s less of a problem for coastal communities, and even Toronto has better access to ethanol supplies.

It is curious that neither Kenney nor Jean have cited this factor or discussed it at all. This surely helps explain much of what has been happening in the market in recent weeks, and yet the politicians calling attention to the situation seem terribly uninterested in understanding this dynamic better.

Higher gasoline prices are obviously a big part of the current inflation picture, which has put enormous pressure on Canadian consumers. But antagonizing this kind of angry economic populism and portraying gasoline retailers as greedy villains is neither fair nor helpful.

“Afternoons with Rob Breakenridge” airs Monday through Friday from 12:30 to 3:00 pm on 770CHQR and from 2:00 to 3:00 pm on 630CHED; [email protected] Twitter: @RobBreakenridge

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