VANCOUVER (NEWS 1130) – One of the biggest reasons gas is more expensive in Vancouver than other comparable areas is rising land costs and credit card processing fees.
That’s according to a new report by Deetken Group, analyzing gasoline prices in the province. It was posted Wednesday by the B.C. Utilities Commission, which is currently overseeing a public inquiry into sky-high gas prices in the province.
The report says rising land costs and credit card processing fees may account for nearly the entire differential in gas retail margins observed between Vancouver and comparable areas up to the end of last year, but not all of it.
“The report confirms what a lot of people have argued, that the increasing land cost in Vancouver is actually spilling into the land prices,” says Werner Antweiler, an economist with the Sauder School of Business who was not involved in the report. “That is, that gas stations are competing for land, and the alternative uses of land are providing more profitable use.
“So if you lease land or own land, the opportunity cost of holding onto that land is growing. As that land cost is rising, we’ll see the cost spilling over into the retail margin for gasoline, and that’s thought to have added as much as five or six cents [per litre] over the last couple of years.”
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Vancouver’s gasoline retail margins — which are the difference between the wholesale price for fuel and the retail price less tax — “highly” correlates with local land values, according to the report.
Meanwhile, since credit card processing fees are applied as a percentage of a total transaction, fees are higher in jurisdictions like Vancouver where prices at the pump are already high.
The two factors don’t explain the full wholesale price differences, with transportation and regulatory costs also potentially accounting for higher wholesale gasoline prices in BC cities.
As for whether there’s any relief on the horizon, Antweiler isn’t optimistic.
“Looking at the competitive landscape, there is simply no way to increase capacity for refining product, simply because this is a low margin business and no company is willing to put money into building another refinery,” says Antweiler. “Without that, there’s just simply no relief in sight. It simply a reality that we have to get used to, that prices will stay high, and we need to find ways to economize.”
-With files from the Canadian Press