Thank you for the chance to address this committee.
Looking at the differentials and price fluctuations, we can see that the average price for Canadian gasoline has climbed steadily since 2011 from about $1.10 a litre in January to $1.35 a litre in May. It has recently declined to $1.27 in June. So it demonstrates the rise and the variation of the pricing.
The peak for Canadian average retail prices at the pump, if anyone was looking for it, was in 2008, in July, when it reached $1.39 per litre for a period over a weekly average.
When we look at slide 7 in the presentation and the material we have from different cities, we can see that variations in price occur at many different urban centres across Canada. We track prices in larger urban centres just to identify and look at variations and look at the pricing structures. Our graph that we have provided here provides data from April to June this year, looking at Calgary, Montreal, Ottawa, Toronto, and Vancouver. One can see quite a bit of variation between those.
Looking at slide 8, in terms of the components, we see the variation in pricing of gasoline in Canada is predominantly driven by three major elements. Those elements are predominantly the crude oil purchase prices, and in the Canadian context this is half from western-produced crude oil in Canada or offshore in the Newfoundland and Labrador area, as well as imported crude oil that comes predominantly from the North Sea as well as from North Africa, from which the eastern part of Canada all the way to Toronto generally imports crude oil.
The second major factor that looks at the cost structures around gasoline is the refining and marketing cost and the margins associated with the refiners, as well as the retail distributors and different modalities between the business models that different retail outlets use to bring their product to market to consumers in Canada. I think the previous speaker addressed a number of those points from the independent perspective.
A third point that we'd want to look at is the other major variation between the different cost structures in gasoline, which is our provincial, federal, and municipal taxes. Those taxes take various forms and they differ greatly from region to region. There are further data that I can present on that in the next few slides.
Slide 9 looks at tracking from 2007 to 2011. The green graph demonstrates the price of crude oil. The red graph is the price of refining and marketing margins, when added. The purple is with the taxes. One can see that the price of gasoline tracks very carefully with the price of crude oil and that the variation is simply between the differences of the other two aspects. As crude oil increases in world markets, so too does the price of gasoline for consumers at the pump.
Moving to slide 10 and looking at refining and marketing costs and margins, I want to draw attention to two things. The first is the blue or purple line. The running straight line shows the average. If you have black and white it would be the top line in the graph, which provides the refining margin, which currently is slightly higher when one looks at an average across Canada, and levels. But one would note that as you look at the trend line, it is a cyclical graph, and certainly it is within the normally observed ranges.
I want to draw attention to one other aspect behind the model in this particular graph. The model looks over time at the benchmark price for crude oil on North American markets. If I wanted to draw your attention to November 2010, from November 2010 the benchmark price for crude oil in North America, which has traditionally been tracked very closely to the global crude price, separated so that North American crude oil price is actually lower than the benchmark crude oil price across the world. So given that Canada both exports and imports crude oil, the model hasn't taken up the variation that actually exists between global crude prices and North American crude prices.
The variation between those today is about $20 per barrel but it has ranged over the last seven months between $3 and $20 per barrel. So when one takes the consumption of imported crude oil at a higher cost into account in the model, the model actually reduces the margin that refiners see by about 6¢ per litre, which means that it is very close to the actual average that has existed for the last number of years in Canada. So one of the factors is the variation in the price of crude oil and what type of crude oil refiners are consuming when producing gasoline.
The second part is about the distribution in terms of retail margins, which is the bottom line. If one looks at that, one can see that the current retail margin is nearly exact to the average over the last number of years, so the variation in terms of that margin is not significant from a statistical point of view.
Turning to the third aspect on slide 11, provincial, municipal, and federal taxes, the federal excise tax on gasoline and diesel has remained constant at 10¢ and 4¢ per litre respectively. Across Canada the average provincial and territorial taxes were 5.5¢ per litre higher in 2011 than they were in 2008. Those variations are due to a number of factors. Certainly those have to do with differences between different transportation, carbon, and different levels of provincial taxation.
If one turns to slide 12, we provided examples of the different variations of federal tax, provincial tax, integrated harmonized tax, as well as carbon and municipal taxes that are available in different parts of the country. In British Columbia there's a carbon tax, for example, as well as a municipal tax. In Montreal one also finds a municipal tax. So those add to the cost at the pump for consumers in those particular parts of the country.
In summary, gasoline prices tend to closely track crude oil prices, refining and marketing costs, and margins tend to be cyclical. Those margins are slightly higher in some cases at this point but within the normal range. Certainly they have been part of the dynamic. The major differences in gasoline in different cities tend to be toward the different levels of taxation.
Thank you very much.