Gas prices have been going up again. Is that because of the switch to summer gas? Why do they switch to summer gas, anyway – and why is it more expensive? Will prices keep going up this summer for other reasons? – Daryl, Halifax
The switch to summer gas sends prices higher every year – but this year has been worse, according to a gas price analyst.
“The difference in price between summer and winter gas was always between three and six cents a litre,” said Dan McTeague, president of Canadians for Affordable Energy, a Toronto-based group that advocates for government policies in support of cheaper oil, gas and electricity.
“But that changed a little bit with inflation and everything happening now (including reduced fossil fuel production, supply chain issues and boycotts on Russian oil after the invasion of Ukraine), and costs have gone through the roof. This year, I think it will be seven cents.”
Refineries switch the gasoline formula twice a year because of government regulations. The switch to a summer blend is mandatory by April 15 and the switch to winter gas starts on Sept. 15.
Summer gas has a lower Reid vapour pressure (RVP) – a measure of how quickly a gas evaporates. Each province sets the RVP according to technical standards set by the Canadian General Standards Board.
Simply put, winter gasoline contains higher levels of butane. That butane is needed to start a car in cold temperatures.
But in warm temperatures, gasoline with a lot of butane starts to evaporate quickly, producing ground-level ozone that can contribute to smog.
For summer gas, some of that butane gets replaced with alkylates, which are “extremely expensive,” McTeague said.
Summer gas also reduces the chances of “pinging” – when gas ignites on its own in the cylinder before it’s supposed to, he said. While summer gas is more expensive, it delivers better gas mileage.
“There’s a difference and people do notice that,” McTeague said. “The big problem is that in the winter, a lot of vehicles won’t start very well on summer gas.”
Alkylate prices are increasing because of growing demand, especially in China and India, he said. More refiners are using them worldwide to meet “more stringent environmental and consumption mandates.”
More pump pain ahead?
Gas prices rose in April after the switch to summer gas and the April 1 increase of the federal carbon tax. Expect more increases ahead, McTeague said.
That’s partly the result of a regular supply-and-demand equation. Gasoline supply decreases every summer as refineries shut down for maintenance, while demand for gasoline increases because of summer travel. That demand fell because of the pandemic, but it’s coming back, he said.
“After the May long weekend, watch out. Unless we go into a global recession or depression, we could see oil moving past US$130 a barrel,” McTeague said. “A lot of this simply is due to just lack of availability – supply chain issues and a lack of supply.”
He said gas could reach $2.20 a litre this summer, with diesel going even higher.
The issues we face every summer add “just pennies” to the cost of gas, said Carol Montreuil, vice-president of the Canadian Fuels Association, which represents the transportation fuel industry.
“We can discuss all kinds of smaller details happening regionally, like winter versus summer gasoline,” Montreuil said. “But at the end of the day, when you look at the price at the pump, there are two main components – the price of crude and taxes … which are as high as 30 to 35 per cent [including GST and provincial sales taxes] in Canada.”
The price of crude oil – which is used to make gasoline and diesel – has been volatile since Russia invaded Ukraine in February. It rose to more than US$130 a barrel in March. But since that peak, the price has dropped, ending the week around US$105 a barrel.
“I clearly never make predictions; your crystal ball is as good as mine,” Montreuil said. “That said, [investment bank] JPMorgan is on the record saying that if the [European Union] sanctions on Russia were to include oil and gas, that could push the price of crude upwards of US$180 a barrel.”
So how high could gas prices get?
“A dollar per barrel is about a penny a litre at the pump,” Montreuil said. So if gas costs around $1.80 per litre when the price of oil is around US$100, the price of gas will be around $2.60 if the price of oil hits US$180 a barrel.
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Jason Tchir