April 2012

Is gas expensive?

The way gas prices have been rising in the past few years, many drivers are starting to wonder how high the cost at the pump can go… A glance at the situation elsewhere in the world will help put things in perspective.

It’s a classic scenario: you fill up the tank, discover that it costs you even more than it did last time, and suddenly feel as if your gas is the most expensive in the world. True or false?

Refining our understanding

First of all, we have to keep in mind that the price of crude oil accounts for almost half of what we pay for gas at the pump. Oil prices are set on the international market and are affected by inventories, global demand, wars, strikes, the climate, and other more or less random factors. Add the cost of refining, transportation and marketing, mix in some government taxes and perhaps a little regional rate management by the oil companies… and the result is the price you pay for a litre of gasoline.

What that means in Canada…

The chart below gives a recent snapshot of the situation in various Canadian cities. As you can see, gas prices vary significantly from place to place. Live in Montreal? Well, be thankful you’re not in Yellowknife… But that’s nothing compared to other parts of the world.

Source: Natural Resources Canada, January 2012

… and elsewhere

At one end of the spectrum, we find big oil-producing countries, such as Iran (10 cents a litre) and Venezuela (2 cents!), who allow their citizens to benefit from their collective wealth by keeping fuel prices to a minimum. But don’t forget that average salaries in these countries are $11,882 per year and $12,048 per year, respectively.

At the other end of the spectrum, we have Europe, where countries such as Denmark and the Netherlands, even though they produce oil, recently saw gas prices reach almost $2.60 a litre! As shown by the graph below, European governments also see an attractive tax lever in gasoline, and they use it with gusto.

Source: The Atlantic

In short, gone are the good old days of a dollar a litre, and the time of $1.50 a litre or more may be upon us... But we can console ourselves with the thought that, no, Canadian gas is not the most expensive in the world!