Fuel Facts

The future of transportation fuels is a national dialogue in which Canadians — and you  — have an important voice. We are pleased to provide you with answers to five questions we are often asked about our industry and the fuels we produce.

5 frequently asked questions about Canada’s petroleum fuels industry.
Q1. Why aren’t we building more refineries to process Canadian crude?
Q2. What’s the environmental impact of petroleum fuels? How dirty are they?
Q3. Why can’t we switch to alternative fuels more quickly? 
Q4. Why do gas stations occasionally run out of fuels? 
Q5. What’s up with gasoline prices? 

Q1. Why aren’t we building more refineries to process Canadian crude?

Canada is fortunate to be home to some of the world’s largest crude oil reserves, including the oil sands and offshore production. It’s sensible to wonder why we refine only a portion of that crude and export the rest. Why not refine it all? The answer is complicated only because there are a number of factors to consider. 

Over the past 40 years, some of Canada’s smaller, older refineries have closed. Other refineries have been modernized to increase efficiencies, expand production capacity and compete in a highly competitive continental and global marketplace for refined products. The result is that we currently have enough refinery capacity to meet domestic needs and have some left over for export to other countries.

So what about demand in the future? 

Future demand for petroleum products in Canada and all OECD countries is expected to be flat or declining. The reason: vehicles are becoming more fuel efficient, alternative fuels are increasingly popular, demographics are changing, and public policies are emerging to reduce GHG emissions from transportation. 

This changing demand profile means that refiners with growth ambitions must look globally for new markets for transportation fuel, namely India, China and the Middle East. At the same time, these markets are responding rapidly to increasing domestic and regional demand by building their own refineries — some of them among the largest in the world. Canadian refiners would have to be extremely competitive to penetrate these markets.


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Can we overcome the obstacles?

Perhaps. Geography is a major challenge. We are at a greater distance from new markets than most of our competitors, which means we would have to produce and transport the refined products at a lower price. Much of the feedstock—the crude on which a refinery relies—is landlocked in Western Canada. 

The world’s most efficient and profitable refining operations are located on tidewater —in the Gulf of Mexico, for example. 

Proposals are on the table to move our crude by pipeline to either the Atlantic or Pacific coast as supply for refineries or export. Proposals exist to build modern, high efficiency refinery operations on the west coast. The price tag: upwards of $15 billion each. The payback period: 25 to 30 years. Although petroleum is expected to remain a key transportation fuel for at least four more decades, an investment of $15 billion comes with significant risks. Which is why there is no rush of investors, private or public. Investors trust market forces to dictate the wisdom of new refineries everywhere, including Canada.


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Where is the best value? 

Some say that exporting crude without processing it into finished products foregoes the opportunity to add significant value. The assumption is that the later stages of processing create better terms of trade. But the stats disagree. In Canada, the value of extraction and the services that support it far exceed refining.
 
The truth is that we’ve struck a healthy balance with Canada’s refining system. We meet our needs while having enough refined product to protect our supply and remain a net exporter. 

While firmly committed to supplying Canada’s transportation fuel needs, Canadian Fuels Association members are also working to get greener every year. Since 2000, our members have invested over $10-billion to improve the environmental performance of their refineries and the fuels they produce, including $5 billion to significantly reduce sulphur in gasoline and diesel.
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Q2. What’s the environmental impact of petroleum fuels? How dirty are they?

All fuels impact the environment, and no fuel is perfectly clean. But cleaner fuels and cleaner air have been one of the refining industry’s highest priorities for years. As a direct result, Canadians now fuel their vehicles with some of the cleanest gasoline on the planet. 

Today’s fuel formulations have evolved through continuous improvements, delivering better vehicle and environmental performance while significantly reducing vehicle emissions.
In the absence of any real alternative to petroleum fuels to meet Canada’s transportation needs, the clean substitute for gasoline and diesel is cleaner gasoline and diesel—and the refining industry has delivered:
• We eliminated lead from gasoline. 
• We cut benzene content to less than 1 percent of volume. 
• We reduced sulphur levels in gasoline by 90 percent and in diesel by 97 percent.

Combined with new vehicle technology, lower sulphur gasoline has reduced smog-forming emissions from a 2005 vehicle (or newer) by 90 percent compared to a 1993 model.
 
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What’s next? 

Working with the auto industry, we are gearing up to meet new regulatory standards and cut sulphur content in gasoline by a further 70 percent starting in 2017. These new fuel and vehicle standards are among the most stringent in the world. They will virtually eliminate smog-causing pollutants in new cars. In fact, light-duty vehicles built to this standard will near the point where their air contaminant emissions could be considered all but negligible.

Environment Canada predicts that by 2030, total Canadian on-road vehicle emissions for nitrous oxide (NOX), sulphur dioxide (SOX) and particulate matter (PM) will fall by 79 percent, 69 percent and 57 percent respectively compared to 2005. 

 

The new standards are expected to deliver approximately $7.5 billion in cumulative health and environmental benefits between 2015 and 2030.
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What about GHG emissions? 

Transportation accounts for approximately 28 percent of Canada’s total GHG emissions, with road transportation comprising the majority (19 percent), and personal use about half of that. The carbon intensity of the transportation sector is dropping, and regulation and innovation are driving significant improvements in fuel efficiency.

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Dramatic reductions in transportation’s carbon footprint will require even greater innovation, new technologies and investments, and personal lifestyle and behavioural changes—such as increased reliance on high density, fixed-route public transit systems. Our industry is committed to a lower carbon transportation future. In partnership with governments and other industries, we are taking meaningful action in key areas, including the promotion of fuel-efficient driving techniques for fleet and personal vehicle use.

What about the environmental impact of refineries? 

Canada’s refining industry has made substantial contributions beyond improving the properties and performance of its fuels. Through progressive environmental stewardship—including investments of $10 billion since 2000—we have significantly reduced emissions at refineries. For example, we’ve reduced carbon dioxide emissions, a greenhouse gas, by 12 percent since 1990.
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Q3. Why can’t we switch to alternative fuels more quickly?

Canadians overwhelmingly choose liquid petroleum—gasoline and diesel—as their transportation fuel. These fuels supply 95 percent of Canada’s transportation needs. Petroleum fuels are energy dense, meaning small volumes store high amounts of energy. This density makes them well suited for the mobile energy needs of cars and trucks. Petroleum fuels are convenient and reliable, and deliver on an ever more demanding set of expectations for engine, vehicle and environmental performance. They are supported by an extensive production and distribution infrastructure to ensure Canadians have access to the fuels they need, when they need them.
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Why don’t more people choose alternative fuels? 

The speed at which alternatives could displace petroleum fuels is influenced by a number of factors. Consumer preference is one, but scalability and substitutability also top the list. Scalability refers to a fuel’s ability to be produced and distributed in quantities large enough to meet demand. The challenge is immense. An alternative would need to compete against the nearly 200 million litres of petroleum-based fuels Canadians consume every day. Substitutability refers to a fuel’s potential to meet consumers’ expectations for performance, safety, convenience and affordability—and petroleum has set the expectation bar quite high. Transportation fuels must perform in a variety of vehicles, over a wide range of temperatures and climatic conditions, and in numerous applications. To successfully displace petroleum, alternatives must meet all these conditions and be supported by an adequate distribution infrastructure. Petroleum’s has been built over more than a century at a cost of billions of dollars. A new national electric-vehicle charging infrastructure and necessary strengthening of the base grid, for example, might not take a century to complete, but they will take decades and cost billions. Who will pay?

Isn’t the internal combustion engine an outdated and underperforming technology? 

With all the attention alternative fuels have been receiving, it’s easy to forget that no fuel or vehicle technology has a monopoly on innovation. Past, current and pending developments in traditional internal combustion engines will continue to deliver remarkable advances in all aspects of performance, especially fuel economy and emission reductions. Some improvements are based on new lightweight materials, changes to vehicle size and power, and advances in powertrain technology. The reality is that conventional, petroleum-fuelled vehicles are well placed to maintain their public favour as the fuel and auto industries continue to evolve and innovate.

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How long will it take for alternatives to gain a significant market share? 

The transportation fuel mix is diversifying. Many talented individuals and organizations are working on solutions that will broaden the mix of fuels available and technologies to use them. Generous taxpayer-funded financial incentives and market interventions have enabled some progress with hybrids, biofuel, natural gas, electric and even hydrogen vehicles. 

Experts predict that transportation will gradually fragment. In the coming decades, each technological solution will have its place depending on where Canadians live, how they drive, and why they need transportation. A battery-powered vehicle will suit someone with a short commute. Drivers who face a lot of stop-and-go traffic will be well served with hybrid vehicles. Diesel will be the best option for long-distance driving and freight transport. 

But it’s a decades-long process of change to develop and deploy new fuels, new vehicles and essential infrastructure. Canadians need a dependable transportation fuel to keep them moving today. Until alternative technologies have matured, petroleum fuels, and the progressive vehicles they power, will remain the dominant transportation choice.

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Q4. Why do gas stations occasionally run out of fuels?

Canadian Fuels members have a strong commitment to, and positive record for, refinery reliability, supply chain integrity and product availability. 

Retail supply disruptions can occur but are most often short term and localized. Widespread and long-term disruptions are rare, and seldom the direct result of a lack of product. The most common causes are unforeseen conditions beyond our control, such as major storms or electrical power failures.
Fuel supply disruptions can impede getting product to customers when unexpected logistical problems occur within the transportation supply chain. Designed, built and continually upgraded over more than century, the fuel supply chain includes refineries, distribution terminals and a complex network of pipelines, railways, ships and trucks. Several modes of transportation are usually required to bring gasoline and diesel from refineries to product terminals located near major markets. From there, fuels are trucked to retail outlets.
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Do refinery disruptions happen? 

Refinery disruptions are unusual. These facilities operate continuously at close to peak capacity 24 hours every day. They are not turned off without significant advance planning. Maintenance and upgrade shutdowns are carefully managed by increasing product inventory ahead of time, or through exchange agreements with other refiners. Refiners also carefully manage their production to meet demand peaks and valleys throughout the year, to formulate the different fuels that are required in summer and winter, and to meet the needs of Canada’s vast geography and different climatic conditions. 

When unforeseen circumstances or events happen, refiners have well established and well tested contingency plans that minimize and mitigate impacts on consumers, and ensure that fuel is always available to meet the needs of emergency services.

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Q5. What’s up with gasoline prices?

Consumers apply a range of criteria when they shop for transportation fuel. They look for different grades of fuel, and may have a preference for one brand over another. Quality is never a question. Convenience is one criteria — choosing a filling station that’s easy to get to. Range of services is important for consumers who want access to a car wash, convenience store, etc. But the main focus is price, which explains why Canadian drivers have so many questions about how much they pay for transportation fuels.

Why does the price change so much? 

Crude oil and wholesale gasoline and diesel are commodities like coffee or wheat. The value that traders place on a commodity changes based on market conditions and underlying supply and demand dynamics. Think about house prices. Although homes are not a commodity, their prices fluctuate in any particular market according to supply and demand.


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Why isn’t the price of gasoline in lockstep with the price of crude oil? 

Crude oil and the transportation fuels derived from them — gasoline and diesel — are distinct commodities. Their prices respond to supply and demand conditions that are often quite different. Their market values change independently, at times moving in opposite directions. Recently, the global supply of crude oil has exceeded global demand. As a result, crude oil prices are low on global commodity exchanges. Conversely, demand has recently grown for gasoline in North America. This shift in the continental supply-demand balance exerts upward pressure on the price of gasoline. So while gasoline prices are down, they may not have declined to the same extent — or at the same time — as crude prices.

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Why is petroleum fuel less expensive in the U.S.? 

Wholesale fuel prices include all refinery production costs including the cost of crude. The wholesale price is what the retailer pays when purchasing fuel at the wholesaler’s terminal or ‘rack’. Canada is part of an integrated North American wholesale fuels market. As a result, Canadian and U.S. wholesale fuel prices generally go up and down in tandem; however, wholesale fuel commodities are traded in U.S. dollars, so the price volatility in Canada is partly due to exchange rates. When the Canadian dollar falls in value relative to the U.S. dollar, the wholesale fuel price in Canadian dollars rises. 

The most significant factor in price differences between Canada and the U.S. is taxes. In January 2016, Canadian taxes accounted for an average of 38 cents on each litre of petroleum fuel. At the same time in the U.S., the average tax component was approximately 17 cents per litre.

Why do different retailers in my community all seem to have the same price, why is gasoline more expensive in my community than elsewhere? 

Retail prices include wholesale fuel costs, transportation costs, federal, provincial and in some cases municipal taxes, and a margin to cover retail outlet operating costs and provide operators a profit. The pump price at any retail outlet is influenced by local supply and demand dynamics. So while retail pump prices generally rise or fall in response to changes in wholesale prices, individual retail outlets are continuously balancing the need to be competitive with the need to maintain a viable retail margin. Market size and remoteness, number of competitors, sales volumes, seasonal demand changes, and the range of services offered are just some of the factors at play. In a highly competitive local market, prices can be quite volatile as retail operators strive to remain competitive with other operators in close proximity. It’s a delicate balance. Pricing too low means losing money, too high means losing sales.

Don’t big oil companies set the price at the pump? 

Canada’s retail marketplace is actually quite diverse. A recent census by MJ Ervin & Associates identified 66 different companies involved in the marketing of retail petroleum fuels with 94 distinct brands of gasoline. In numbers that are at odds with the traditional public image of the industry, the three major oil companies (Shell, Suncor and Esso) control price at only 15 percent of retail gas stations in Canada. The prices at 81 percent of stations, including many that operate under the brand of a major oil company, are controlled by proprietors or companies not involved in the refining of petroleum products.
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Fuel Facts