CIPMA Connection

January | 2019

MESSAGE FROM THE PRESIDENT JENNIFER STEWART

NORTHERN ONTARIO PUMP PRICES EXPLAINED

BY THE KENT GROUP LTD.

UPCOMING EVENTS 2019 CANADIAN FUEL MARKETING CONFERENCE 2019 CIPMA GOLF CHALLENGE

NEWS UPDATES

FULL MEMBERS

ASSOCIATE MEMBERS

CONNECTION CONTENTS

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| MESSAGE FROM THE PRESIDENT

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| NORTHERN ONTARIO PUMP PRICES EXPLAINED

By Kent Group Ltd.

7

| UPCOMING EVENTS

8

| ADVOCACY UPDATES

9

| NEWS UPDATES

MISSION CIPMA’s mission is to ensure the sustainability and growth of a healthy and viable independent fuel marketing and distribution sector at both the wholesale and retail levels in Canada. Our specific goals include: Ensuring that independent fuel marketers thrive and have the opportunity to earn a fair and reasonable return that is proportionate to their business risk and capital investment, and ensuring that Canadian consumers and independent fuel marketers have access to a competitively priced and readily available supply of fuel products in all regions of the country.

MESSAGE FROM THE PRESIDENT JENNIFER STEWART | PRESIDENT & CEO

Dear CIPMA Members and Associate Members It is with great pleasure that I share the first 2019 edition of our Connection Magazine.

Planning for the upcoming Canadian Fuel Marketing Conference is in full swing. I am looking forward to having a former leader of our nation join us to kick off the event for a second year in a row. We have an excellent roster of speakers lined up for this years’ conference, to provide insight on the trajectory of the fuel marketing sector and share guidance to help keep us all at the top of our game. Some sponsorship opportunities are still available for those that are interested.

In addition to our event planning, the CIPMA team remains committed to being the voice of our members and advocating on behalf of the petroleum marketing sector.

As always, if there is an issue that arises that you wish to bring to our attention, please feel free to reach out at any time.

On behalf of the Board of Directors and the team at CIPMA, I want to thank you for your continued membership and participation in the association.

Sincerely,

Jennifer Stewart President and CEO Canadian Independent Petroleum Marketers Association Canadian Independent Petroleum Marketers Association | Connection 2019 |

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Canadian Fuel Marketing Conference Join us April 8 to 10, 2019 at the Marriott Downtown Toronto for our annual Conference presented by CIPMA.

The Canadian Fuel Marketing Conference is the Number One networking and educational event for the fuel marketing industry in Canada.

We have an exciting slate of speakers lined up, including: • • •

The Right Honourable Joe Clark, 16th Prime Minister of Canada Rex Murphy, Social Commentator, Editorialist & Distinct Canadian Voice Nicole Verkindt, Founder of OMX and “Dragon” on Next Gen Den

Register Now!

Canadian Independent Petroleum Marketers Association | Connection 2019 |

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NORTHERN ONTARIO PUMP PRICES EXPLAINED B Y K E N T G R O U P LT D .

Gasoline prices in Canada can vary from one province to the next, from one city to the next, and even within the same city or along the same street.

Recently, there has been some interest in examining the relative disparity of gas prices between Northern and Southern Ontario. Greg Rickford, a northern Ontario MPP and current Minister of Energy, Mines, Northern Development and Indigenous Affairs called for the Competition Bureau to probe Northern Ontario fuel prices. This article will provide a general explanation of why these differences can exist and why at times the prices in these two regions seem to move independently of one another.

Pump prices are made up of four main components: crude costs, refining costs, marketing costs, and taxes. These components can vary between provinces, but can also vary within a province, as shown in Figure 1. A comparison of average 2018 gasoline prices for select cities in Canada shows that Northern Ontario prices were higher than those in Southern Ontario, and differences are exhibited in each of the price components listed.

Figure 1: 2018 Gasoline Pump Price Components, Select Cities

Crude oil is a commodity which is traded in the global marketplace and its fluctuations are largely a result of global supply and demand conditions.

Refining margins are determined by the difference between the cost of crude oil input into a refinery and the price of the wholesale refined product sold by the refiner to a fuel marketer/retail site.

Canadian Independent Petroleum Marketers Association | Connection 2019 |

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Refining margins for gasoline tend to fluctuate on a regular seasonal basis, rising in response to strong summer demand and falling in winter during times of lower demand. Refining margins can also vary in response to regional inventory levels and supply dynamics, supply logistics (competitive markets are formed where they are connected by pipelines, rail, and marine transport), and the costs associated with moving refined products from the point of production (the refinery) to the point of consumption (the retail fuel site).

Figure 1 shows that wholesale prices in Ontario were not uniform in 2018; in Northern Ontario the wholesale price of gasoline averaged roughly 81 cents per litre, similar to Western Canadian markets like Winnipeg, while wholesale prices in Southern Ontario averaged roughly 76 cents per litre.

Thunder Bay and other Northwestern Ontario markets are unique; while they can be served by refineries in the central Canada (Ontario/Quebec), they are most closely linked to markets in western Canadian, being supplied mainly by rail and tanker truck from Winnipeg. Therefore, wholesale gasoline prices in Northwestern Ontario are most often influenced by wholesale prices in western Canada, and they can at times move completely independently of prices in Southern Ontario.

Figure 3: Weekly Thunder Bay, Winnipeg, & Sarnia Wholesale Gasoline Prices, 2016-2018

Figure 2: Ontario Refined Petroleum Products Infrastructure

To understand why Northern Ontario wholesale gasoline prices more closely matched those of Winnipeg and not those of Southern Ontario, we must examine the infrastructure involved in transporting finished petroleum products to retail stations in Ontario (Figure 2). Most of Ontario largely depends on gasoline produced from four Southern Ontario refineries and one Quebec refinery (Montreal). Finished petroleum products are generally transported from those refineries to primary distribution terminals in Southern Ontario by pipeline, the most cost-effective mode to move petroleum products. Northern Ontario terminals are further from points of production and do not have access to refined product pipelines, meaning terminals in Sault Ste Marie or Thunder Bay are supplied via marine transport, rail, or tanker trucks.

Marine supply is a relatively cost-effective method to move refined product but is only available when weather cooperates; most northern terminals would have access to petroleum products via rail, a more expensive but reliable method to transport petroleum products. If rail is not available, petroleum products could be delivered by tanker truck to a distribution terminal; however, this method is by far the most expensive mode of transportation. Generally, the longer the distance a product is transported by either rail or truck, the higher the expense.

As Figure 3 shows, Thunder Bay’s wholesale gasoline prices have consistently followed Winnipeg’s prices more closely than prices in Southern Ontario, showing a small but steady differential to Winnipeg that has shifted with changes in the cost and availability of transport capacity. Since the terminal in Thunder Bay supplies a large number of bulk plants throughout Northwestern Ontario, higher prices at this terminal in late-2018 (caused by western Canadian market conditions) meant wholesale prices in many other Northwestern Ontario markets remained high and moved independently of those in Southern Ontario.

Another component of the pump price that influences retail prices is the marketing margin, which is defined as the difference between the pump price (with taxes removed) and the wholesale price. The marketing margin must cover a broad range of costs such as the transportation of petroleum products from distribution terminals to the gas station, all operating costs of the gas station, as well as any profit for the retailer.

Canadian Independent Petroleum Marketers Association | Connection 2019 |

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This portion of the pump price can vary by station due to factors such as: distance from a primary terminal (greater distance means a higher cost), retail throughputs (a higher volume of gasoline sold at a station often means there is a smaller fuel margin needed to cover costs), and revenue for ancillary offerings (more revenue from non-fuel sales such as convenience store goods, restaurants, or car washes generally means less margin required from fuel).

Despite the fact that margin requirements can vary by site, Northern Ontario gas stations have (on average) a higher margin need due to higher transportation costs and lower average station throughput. Unless revenue from ancillary offerings makes up the difference, average marketing margins are likely to be higher in Northern Ontario to meet their higher fuel margin requirement. Figure 1 shows that the average marketing margin in Thunder Bay was 11.3 cents per litre in 2018, while Winnipeg’s was 5.4 cents per litre; this was partly a consequence of Winnipeg’s average site throughput being 35 percent higher than Thunder Bay. Lastly, the pump price includes a tax component, and though most petroleum taxes are set at a fixed rate, pump prices in Ontario include the Harmonized Sales Tax (HST), which is calculated on a percentage basis and varies with price. Higher Northern Ontario wholesale prices and higher marketing margins translate to a higher amount of HST than what is included in Southern Ontario prices. In 2018, the average price per litre in Thunder Bay included an additional 1.7 cents per litre of HST when compared with Sarnia.

Northern Ontario gasoline prices are often higher than those in Southern Ontario, and it is common for those prices (particularly those in the region surrounding Thunder Bay) to move independently of prices in Southern Ontario. The reasons for this are varied: higher costs to transport products to Northern Ontario, lower average throughputs and higher distribution costs contributing to higher marketing margins, and the influence of Western wholesale markets. This unique combination of factors can help explain what may be viewed as anomalous pricing in Northern Ontario.

Canadian Independent Petroleum Marketers Association | Connection 2019 |

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Responsible for over 50% of gasoline sold in Canada

50%

4 new members this year

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23 full members (to-date)

Over 20 meetings with Government

23

20+

32 associate members (to-date)

More than 6 media interviews

32

6+

DIGITAL NEWSLETTER

Independents made up 78% of the Canadian gasoline market

78% 4 issues of the Advocacy magazine published (to-date)

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GOLF TOURNAMENT

Strong attendance at annual golf tournament

44 issues of the Connection newsletter published (to-date)

ATTENDANCE

CONFERENCE

Sold-out Fuel Marketing Conference

Attendance at the Senate committee hearing

ENGAGEMENT

EDITORIALS

Engagement with SIGMA and the Fuel Institute

Quoted in National Post article on gas price regulation

SOCIAL MEDIA 54,649 + impressions | 129 tweets posted | 1,194 tweets posted (to-date) 445 followers (to-date) | 33 new followers | 1,909 profile visits Canadian Independent Petroleum Marketers Association | Connection 2019 |

UPCOMING EVENTS CIPMA CONNECTION | 2019 EVENTS

2019 CANADIAN FUEL MARKETING CONFERENCE April 8 to 10, 2019 | Toronto, ON Register Today!

CIPMA GOLF CHALLENGE September 12, 2019 Save the Date!

Canadian Independent Petroleum Marketers Association | Connection 2019 |

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ADVOCACY UPDATES Government advocacy is the main priority for the CIPMA team, and having a voice on important issues at the municipal, provincial and federal levels of government is one of the key reasons why Members join our organization. CIPMA Members receive quarterly updates on the association’s advocacy efforts, which are also posted on the Members Only section of cipma.org.

2019 | Canadian Independent Petroleum Marketers Association | Connection 2018

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NEWS UPDATES This section presents a series of media articles of interest to the sector. The headlines included below are taken directly from media sources and are not written by CIPMA or CIPMA team members.

GLOBAL

OIL AND GAS INVESTORS ARE ENDANGERED BUT NOT DOOMED Hydrocarbons will remain vital even as renewable energy expands its role.

CHINA LEADS INVESTMENT IN COAL PROJECTS—AND ALSO RENEWABLES China continues to finance new coal plants in more than two dozen countries, even as the country has taken the lead in global renewable energy investment, according to a report from a U.S. group of energy analysts.

RUSSIA CONSIDERS CAP-AND-TRADE GREENHOUSE GAS LAW Russia is considering a legal framework that would introduce a national cap-and-trade system for regulating the heat-trapping gases causing climate change.

BRITISH TAXPAYERS FACE £24BN BILL FOR TAX RELIEF TO OIL AND GAS FIRMS British taxpayers face a £24bn bill for tax relief awarded to oil and gas companies removing hundreds of North Sea wells, rigs and pipelines, the UK public spending watchdog has said.

Canadian Independent Petroleum Marketers Association | Connection 2019 |

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UNITED STATES

CARBON TAX BACKERS GRAPPLE WITH ‘GREEN NEW DEAL’ Congressional carbon tax supporters are planning to introduce a slew of emissions pricing bills in the coming months, even as progressives coalesce around a broader plan to tackle climate change, but one thing is clear: The “Green New Deal” has left its mark.

US OIL AND GAS FIRMS ARE READY TO SPEND AS CONFIDENCE GROWS, SURVEY SAYS Executives in the U.S. oil and gas industry are said to be much more optimistic about growth in the sector, compared to last year. In its annual study, DNV GL, claimed that 85 percent of American executives questioned believed there were reasons to expect an increase in drilling in 2019. In the corresponding figure for 2018, the figure was 60 percent.

US OFF TRACK TO REACH CLIMATE GOALS AS OIL AND GAS PRODUCTION EXPAND The US could become a net energy exporter by next year as oil and gas production expands, according to new projections from the Energy Information Administration.

NATIONAL

CANADIAN RETAIL GASOLINE PRICES AVERAGE 106.3 CENTS PER LITRE IN JANUARY As of January 25, the Canadian average retail regular gasoline price was 106.3 cents per litre, down from 126.2 cents per litre in January 2018, while the average retail diesel price hit 117.9 cents per litre, versus 126.4 for the same time last year, according to Kent Group Ltd. For more information and analytics, click here.

SUNCOR’S ETHANOL BUSINESS PROPELS IT INTO SUSTAINABILITY RANKINGS Canada’s largest oil company has once again made it onto a popular list that annually ranks the world’s 100 most sustainable corporations. Calgary-based Suncor Energy earned the honours this year by having an industry-leading portion of its revenues labelled as clean, mainly stemming from its investment in biofuels — an area that is subsidized by governments.

THE MASSIVE DISRUPTION ABOUT TO DESCEND ON GLOBAL OIL IS ALREADY HAPPENING HERE Canada’s oil and gas industry remains injured after the turmoil of 2018. Pipelines, politics and prices pummelled the psyche of stakeholders. Now the question is, “What will it take for companies to attract investors again?”

OTTAWA’S CARBON PRICING PLAN FACES OPPOSITION, UNCERTAINTY, POLL REVEALS The majority of Canadians either don’t approve or are not aware of the federal government’s carbon pricing plan, suggests a new survey by Forum Research.

HOW TO MOVE STICKY CRUDE: OIL-SANDS FIRMS THROW NEW TECH AT OLD FOE In their quest to make one of the most expensive methods of producing crude more profitable, Canada’s oil-sands companies have been ramping up efforts to get their peanut butter-like bitumen to flow through pipelines more easily and cheaply.

‘NO NEW OIL AND GAS,’ SAYS NDP CANDIDATE SVEND ROBINSON Former New Democrat MP Svend Robinson is returning to politics after 15 years away, and he’s making opposition to oil and gas a key part of his pitch.

SALES OF ELECTRIC CARS SOAR BUT CANADA STILL NOWHERE NEAR 500,000 GOAL SET IN 2009 More electric cars were sold in Canada in 2018 than in the previous three years combined, but they still accounted for about two per cent of all vehicles sold.

Canadian Independent Petroleum Marketers Association | Connection 2019 |

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WESTERN REGION OIL PRODUCERS WANT TO SEE POLICIES THAT WILL DOUBLE INDUSTRY’S GROWTH IN ALBERTA ELECTION The energy industry’s want list as Alberta politicians gear up for a spring election includes a doubling of the industry’s growth rate and support for six energy pipelines.

SASKATCHEWAN ENACTS REGULATIONS TO CUT METHANE EMISSIONS The regulations, enacted on January 23, put into action a previously announced Methane Action Plan.

They aim to reduce emissions by 4.5 million tonnes.

HUSKY ENERGY LOOKS TO GET OUT OF THE GAS STATION BUSINESS AFTER 80 YEARS Company has put 500 retail operations and Prince George, B.C., refinery on the block.

CITY OF VICTORIA RECOMMENDS CLASS-ACTION LAWSUIT AGAINST THE OIL AND GAS INDUSTRY The City of Victoria has become the first municipality in B.C. to support filing a class-action lawsuit that seeks to have oil and gas companies help pay a portion of the costs associated with climate change and is hoping other municipalities follow its lead.

SOUTH AMERICA: THE SAVIOUR FOR SOME CALGARY OIL AND GAS FIRMS Exploration and production companies turn to South America as a way to survive.

ONTARIO / QUÉBEC REGION CANADA INVESTS IN THE COUNTRY’S LARGEST PUBLIC ELECTRIC VEHICLE NETWORK IN QUEBEC Electric and alternative fuel vehicles play a key role in reducing pollution. As Canadians continue to make greener choices, the Government of Canada is delivering more options for them to drive where they need to go while reducing pollution.

PETRO-CANADA BRINGS EV CHARGERS TO MILTON, ONTARIO GAS STATION Petro-Canada has added a level-two electric vehicle (EV) charging station to its gas station on Steeles Avenue in Milton, Ontario.

‘A TOTAL ECONOMIC DISASTER’: DOUG FORD SAYS THE LIBERALS’ CARBON TAX WILL PLUNGE CANADA INTO RECESSION During a speech at the Economic Club of Canada, the Ontario premier said there are warning already signs of difficult economic times ahead.

BTA COMPLETES WASTE-TO-GAS PLANT FOR SÉMECS IN CANADA BTA International GmbH, a specialist for the wetmechanical pre-treatment and subsequent digestion of organic waste containing impurities, and its North American partner CCI BioEnergy Inc. have completed a major waste to gas facility in Varennes, Quebec.

ATLANTIC REGION GAS PRICES SEE SMALL INCREASE ACROSS NOVA SCOTIA The provincial regulator using its weekly adjustment to raise the minimum price for regular self serve by 6-10ths of a cent to 100.4.

BP CANADA SCALES BACK GAS AND OIL EXPLORATION PLANS OFF NOVA SCOTIA BP Canada is scaling back its oil and gas exploration plans off Nova Scotia, giving up half the offshore area included in its exploration licence.

P.E.I. HOUSEHOLDS LEAD COUNTRY IN GREENHOUSE GAS EMISSIONS P.E.I. households had the highest greenhouse gas emissions per capita in the country in 2016, according to a report out this week from Statistics Canada.

HUSKY TAKING STEPS TO RESUME SEAROSE OPERATIONS TWO MONTHS AFTER OIL SPILL A Canadian oil and gas company says it’s working to reassure regulators that it can resume safe operations, two months after a massive oil spill at one of their offshore oil production sites.

Canadian Independent Petroleum Marketers Association | Connection 2019 |

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We want to share the successes of our members.

If you want to feature your company’s recent achievements, updates, or simply want to be featured, please reach out to Jennifer Stewart at jstewart@cipma.org

Jennifer Stewart, President and CEO jstewart@cipma.org | Cell: 613.915.5699

Rita Molinari, CMP, Operations Manager rmolinari@cipma.org | Cell: 416.358.5207

MAILING ADDRESS | 3-1750 The Queensway, Suite 115 - Toronto, ON., M9C 5H5