Big oil’s grip on Canada’s gas stations diminishing

When you drive by a gas station today, chances are big oil is not running it or setting the price at the pump.

Despite what you might think, gas prices at the majority of Canada's 12,285 gas stations are not directly controlled by energy giants such as Shell, Suncor and Imperial Oil. Just over three quarters of the country's gas stations are run by independents, known in industry jargon as "non-refiner marketers."

A recent analysis by MJ Ervin & Associates shows the traditional "well-head to gas tank" vertical integration business model for the dominant oil and gas companies has broken down over the past two decades, thanks in part to the rise of big-box retailers who have contributed to the decline in conventional gas stations.

And with diminished control of Canadian gas stations, the survey suggests the dynamics at the pump could get better for consumers as big-box branded gas stations such as Costco or Loblaw offer more competitive prices.

"More choice is going to translate into better prices for consumers. I use the word better as opposed to lower because you can't predict what's going to happen to crude prices," says Michael Ervin, principal of MJ Ervin & Associates.

"But the benefit to the consumer is that the retail portion is not going to grow. If anything, it's probably going to shrink."

The average price a consumer pays at the pump across Canada right now is roughly $1.30 per litre. About half of that price is determined by the price of crude; 15 per cent by the refiner mark up; 5 per cent is the retail marketers mark up; and roughly 31 per cent is taxes, says Ervin. At the retail level, it is unlikely companies will price themselves out of the game.

The total number of retail gasoline stations in Canada stood at 12,285 as of Dec. 31, representing a downward trend since the late 1980s when more than 20,000 existed, the survey shows.

Only 14 per cent of Canada's gas stations come under the direct price control of the three major oil companies including Shell, Suncor and Esso, the survey shows, also noting 36 per cent of big brands can appear on the signage of gas stations even though some are run by players such as Pioneer Energy and Parkland Fuel. Independents represent some 77 per cent of retail gas stations.

The big-box branded gas stations are known for their cheap prices, and many come with perks such as a nearby grocery store where consumers can conveniently shop before or after filling up their tanks.

But buying from the lowest-price branded stations isn't always a good thing, particularly in places like Toronto where little competition has historically resulted in prices moving higher in lockstep, says Dan McTeague, a former Liberal MP and founder of web site tomorrowsgaspricetoday.com.

"The lowest price isn’t a reflection of competition, it’s actually predatory pricing aimed at undermining hard-working, independent-owned gas stations who, through sweat equity, were keeping the big integrated oil companies on their toes," he wrote on Monday.

If the dynamic is such that more independent players are squeezed out, leaving a handful of dominant gas retailers, that could in the long-term translate into some higher prices at the pump as there is no incentive to keep prices low, says McTeague.

Big Box, grocery and convenience stores serve as willing participants in the price squeeze at the retail level, "safe in the fact that they recover their below-cost gas sales by charging you inflated prices at the grocery/convenience checkout," says McTeague, adding "there's no such thing as a free lunch."