The double-edged sword of cheap gasoline
Albertans are in the awkward position of benefiting from low gas prices while our oil patch and the economic activity it generates takes a hit from those same low prices.
By ATB Economics 27 March 2020 2 min read
If you have been staying home to help stop the spread of COVID-19, you may not have noticed that some gas stations around the province are selling a litre of gas for under 60 cents. For the non-drivers out there, that is extremely low. Gasoline hasn’t been this cheap since early 2016 during the last global oil price crash.
On the one hand, this is welcome news for truckers, public transit operators, car owners, farmers and anyone else who uses gas and other refined petroleum products. On the other hand, it’s bad news for a province that produces a lot of crude oil and gasoline.
Alberta is home to four oil refineries (not including oil upgraders) and one asphalt plant. Together, these facilities have the capacity to process about 541,000 barrels of oil a day or about 28 per cent of Canada’s refining capacity. That yields a lot of gasoline, diesel, jet fuel and other products that are sold not only in the province, but to customers in other parts of Canada and in the United States.
There are a lot of complex factors that affect the profitability of refineries and the vertically integrated oil companies that own them, but lower gas prices generally lead to lower profits and, in turn, fewer jobs, reduced capital spending and lower tax revenue.
On top of this, demand for gasoline and jet fuel is down at home and abroad as a result of the pandemic and this will cut even deeper into the sector’s bottom line.
Living in a place that produces a lot of gasoline and other refined petroleum products, Albertans are in the awkward position of benefiting from low prices while our oil patch and the economic activity that depends on it takes a hit from those same low prices. It’s a bit like a baker who pays less for the bread her family eats, but also takes home less income from her bakery.
A note on COVID-19: The COVID-19 pandemic is having a major impact on the economy here in Alberta and around the world. The Owl will report on these impacts when good information is available while continuing to track regularly scheduled releases of economic data and long-term trends.
For additional information on COVID-19 and advice for the public, please visit World Health Organization or Alberta Health Services. Please go to atb.com for COVID-19-related updates from ATB Financial.