Gas station owners get a very small share of the money from fuel sales

Rudy Norman
Send to a friend

Send this article to a friend.

It's a routine for most people; pulling into a gas station to fill up your vehicle.
These days, with gas prices at around $1.37 a litre for "regular" fuel in Central Newfoundland, it's also a big expense out of any household budget.
One might assume, as well, that the business of selling fuel is a profitable one for anyone who owns a gas station.

That's not so, according to gas station owners and the numbers offered by the Public Utilities Board (PUB).

The $1.37 a litre is shared up between the oil companies, government, gasoline wholesalers and gas station owners.

While not an exact science, Robert Byrne, Director of Regulatory and Advisory Services with the PUB, says breaking down who gets how much money from that sale of a litre of gasoline is a fairly simple task once all the information is available.

The PUB sets some aspects of the cost of gasoline, and calculates the other numbers, based on benchmarks, and information it gathers from world markets.

The first number the PUB considers is the Average New York Harbour Benchmark Price for period.

"That's what's called the NYMEX, or the Commodity Exchange Price - that's what we start our pricing with," said Byrne. "This is the average of seven day's values as reported by the Platts reporting service."

At Jan. 16, that number was at 76.81 cents - which the PUB has no control over, and is based on factors such as the market price of oil, and others.

Next, a mark-up is put on that price in the amount of 14.83 cents.

The PUB decides on the 14.83 cents number, explained Byrne - one of the few aspects of a gasoline price they actually have control over.

"This is the amount of money that's built into the price that either goes to the service station owner that's dispensing the fuel, or to the wholesaler that brings it in, stores it, and transfers it to the retailer," explained Byrne. "Out of that 14.83 cents a litre, 8.58 (cents) goes to the supply chain before the operation - so that would be the exploration cost, the refining cost, the transportation cost, storage cost, and delivery cost."

In the end, out of that $1.37 per litre of fuel, the gas station owner gets 6.5 cents of every litre of fuel they sell, explained Bryne.

The other aspect the PUB has control over is the Zone Differential - the formula that considers the cost of getting gasoline to different areas of the province.

"The cost to dispense (gasoline) is pretty much the same - you've got to have a pump, you've got to have a staff person, you have to have a shop and so on and so forth. But the actual cost to get the fuel to the different areas of the island is what the zone differential is designed to compensate for," said Byrne.

"The wholesale cost is to get it to the wharf, as you were, or from the refinery gate if it comes out of North Atlantic. And then the additional cost to get it from those areas to the outlying areas is what the Differential would represent, and there's various differential prices which is reflected in the different prices that we have that we issue weekly."

For Zone 5, for instance, the Zone Differential is calculated at 3.9 cents per litre, which is tallied into the total cost per litre that consumers pay at the pumps.

With the cost of refining, delivery, zone differential and gas station owner's share added up, the price of a litre of gas is at 95.54 cents. That's what people would pay at the pump if the add-ons stopped there.

So what drives the price up the other nearly $0.42 cents a litre? Taxes.

On every litre of gasoline, the federal government receives $0.10 cents. The province collects 16.5 cents.

Then the HST is added on, to get the final price per litre at the pumps.

Barely making it

 

Dwayne Rogers says when you break down who gets a share of the money for every litre of gasoline sold, it's a glaring fact just how little retailers are actually making.

Rogers owns the Esso station in Baie Verte, one of only two gas stations in the community. He says that even though his station sells quite a large volume of gas, considering his rural location, it's a struggle for the business owner.

"A lot of us are struggling to get by, actually, because it's been so long since we've seen an increase, and the cost of operations are constantly going up."

Rogers says basic mathematics can determine what a station similar to his is making. He's a privately owned gas station, which means that even though he's flying the Esso banner, he's still an independent business owner, who pays his own way in the day-to-day operations of his station.

"We sold about 1.5 million litres of gasoline last year," he said. "On paper, it looks like we did really well, but when you start to look at it closer, you realize that what we make on gas isn't much at all."

According to the PUB, residents of Zone 5 paid an average of $1.37 per litre for gasoline in 2013, based on analysis of the whole year's gas prices.

Using that figure as a basis for calculation, would mean a station selling the equivalent amount of gas to Rogers' took in a little over $2 million dollars. However, as he points out, that's far from what he would bring home.

On 1.5 million litres of gasoline, based on the PUB's benchmark of 6.25 cents for the retailer, Rogers says that adds up to only $93,750; a very small share of the $2 million in sales.

"It doesn't take a genius to figure it out, does it? The problem is that people see the price of gas on the pump, and if I told them last year I sold 1.5 million litres, they go home thinking I made over $2 million dollars - but that couldn't be further from the truth."

Because his margins are so low, Rogers says he's finding it hard to keep his operation above the waves, especially as gas prices fluctuate weekly.

"Let's say I buy gas at the higher price that's set," he explained. "So on that gas, I have a six cent margin to work with. If the price drops, and I've still got that expensive gas in my tanks, then my margin drops with it and, suddenly, I don't make as much money."

Rogers says he's heard the argument go the other way as well, that if the price goes up, he makes money on his gas. However, he says, based on experience, that doesn't play out in reality.

"If I have the gas in my tank that I bought at a certain price, and word comes out that gas is going down the next day, or whatever, then that's the days I hardly see a vehicle pull into the pumps," he said. "Obviously everyone is going to wait to come by and get the lower price, which means a loss for me.

Now let's say I have the gas in the tank and word comes that the price is going up. Then what happens? I can hardly keep up with it, everyone is coming to fill up before the price goes up, they drain the tanks, and I still end up having to buy the more expensive gas, and losing my chance at making a bit higher margin."

Just how does that margin translate into real-world dollars?

Suppose you pull into a gas station for a $50 fill-up. At the average 2013 price of maximum $1.37 a litre, a person would put 36.5 litres of gasoline in their vehicle. If the retailer is getting the PUB's suggested 6.25 cents a litre, their margin on your fill-up would be 2.28 cents, or roughly 4.5% of the total amount you spent on your purchase.

Rogers says when people realize that, and see what a retailer is expected to do with that money, it's staggering.

"Out of what we make we have to pay for everything from maintenance and insurance on the pumps down to the paper in the cash register," he explained. "It's crazy, really - when you realize what goes into running everything - insurance and minimum wage is going up all the time, maintenance on the pumps isn't cheap, things need to be replaced every so often and . . . it's almost too much sometimes."

One of the biggest dents in his profits, says Rogers, is something that's become increasingly more popular and necessary in running a business.

"Let's say someone fills up at the pump, and they come inside, and they've got a credit card there to pay for their gas," he said. "A lot of credit cards charge 3% of the total purchase in fees - that has to come out of what I make," he said.

On the $50 fill-up, Rogers explains, if a 3% credit card fee is applied that's another 1.5 cents coming off his margin, leaving him with an actual margin of 78 cents to keep everything afloat.

Morris Budgell of King's Point says the low margin is why he shut down his gas station at Baie Verte Junction.

"We just couldn't do it; there wasn't enough money into it," says Budgell.

He told The Nor'Wester they spent a considerable amount of money installing the pumps and making sure everything was up to standards in order to sell gas there in the first place.

"It's not cheap, you know. We put in about $50,000 just to get up and running. Then when we started going, with the low margins you make on selling gasoline, it's nearly impossible, to do anything with it."

Budgell says one of the biggest deterrents he found with selling gasoline from his location was the disadvantage he had of the Zone Differential.

"People would come by and, rather than stopping to my place, they'd go on to Hampden Junction because they'd get it cheaper," he said.

Budgell says something needs to be changed, otherwise more stations like his will have to shut down.

"Look at the number of gas stations you see shutting down," he said. "They just can't make it anymore; there's not enough into it to keep going."

 

Byrne, with the PUB, says they recognize the trouble that some station owners are having, but says they're in a difficult position when overseeing the entire province.

"It's sort of a difficult thing because you're trying to get a price for a product that fits all retail outlets and not all retail outlets are created equally," he explained. "If you have a guy that's putting through a half-million litres of fuel a year, versus someone who's going through a million litres a week, the return is different, there's no question about it."

However, he says, a number of retailers have brought their concerns to the PUB and he says a review is underway.

"We're doing a review of the margin right now, and that's been underway for the last number of months," he explained. That review would encompass the areas of gas prices the PUB has control over - the Total Allowed Mark-up, and the Zone Differential.

However, one fact still remains that Byrne is quick to point out.

"The vast majority of the cost of a litre of gasoline is outside of our control in its entirety," he said. While he doesn't come out and say it, anyone who looks at the numbers knows that outside of the price controlled by world markets, the next biggest culprit for driving the price of gasoline up is the taxes imposed by Government.

At least one provincial politician is saying the issue runs even deeper than most realize.

George Murphy, the NDP Member for St. John's East, is no stranger to gas prices in the province. As a member of the Consumer Group for Fair Gas Prices, Murphy has been talking gasoline prices for the past number of years. He says the taxes government imposes on gasoline has been a topic of their conversation for a long time.

"The consumer, when he's taxed at the pumps, he's also being taxed an extra 3.5 cents a litre, because of how the province and the federal government figure out their range of taxes after they put the retailer markup on," said Murphy. "All because the provincial and federal governments can't seem to get together at the table to renegotiate the HST agreement they originally signed."

Murphy says the double taxes consumers pay for isn't fair for the people who fill up at the pumps.

"It's part of our platform that we'd change that, so that you're not dinged those extra 3.5 cents," he said.

However, if that can't be done, Murphy says, they have ways they can better spend the money collected.

One of the NDP's suggestion is to put that tax money back into the rural economy, via tax breaks for small businesses.

"For any small business that has a payroll less than $500,000 dollars, (annually) they should not be paying any kind of small business tax in this province," Murphy says. "So our proposal is to reduce it by one percent a year, to the point where you're not paying anything, because you've got small businesses in this province that are running about 40 percent of the economy. So that's somewhere else where we could be helping keep a small business viable."

When it comes to small businesses and gas stations working to get better margins and profits on their products so they can survive, Murphy says, at least for now, it isn't going to be easy.

"It's an uphill battle; because you've got a provincial government here too, don't forget, that isn't doing anything to stimulate rural growth in this province; it wants everybody else on that Trans Canada Highway so it can service everybody or not at all.

"What are they doing to promote economic growth out there in Ming's Bight?" Murphy asks, adding, "The last time I heard a news release on Ming's Bight was ... I can't remember when."

However, Murphy and the NDP's main message seem to be to not give up hope.

"There's got to be a future for rural Newfoundland. It's about every small business in every community out there - how do they grow? You've got to have government initiative . . . guts and brains behind it if you want them to grow or at least give them the foundation where they can express growth.

"If you've got more people spending money in the economy because their childcare is lower, or their household expenses are lower, you'll be able to pour more money into the economy and then you'll have the basis of staying here in the province and working for $19 dollars an hour driving a truck instead for going to Fort Mac and working for $40-50 dollars driving a truck up there just to keep your head above water and pay off the Visa card."

 

Dwayne Rogers says whether or not the review of the PUB will return any results to help him and other businesses like his, remains to be seen.

"I hope that when they finally do come back, if they have any sort of increase or anything like that, then they'd have something we can work with and get by on," he said.

Rogers says they're the front line workers; the ones who get the products out to the consumers, and take the much of the brunt that comes with the troubles and trials of gasoline economics and politics.

"We're the ones who hear the complaining most, the ones who have to keep up with everything that people need and expect when it comes to getting gas for their vehicles," he said. "If they (gas producers and wholesalers) don't have us, they don't have anything . . . they have no way to get their product out to people who buy it."

Rogers points out that gas stations service not only consumers but also emergency vehicles and government equipment used to service and maintain the province's highways.

"Sometimes we'll get a call that we need to come in to get gas for an emergency vehicle or something like that," he said.

"I guess that makes us an essential service too," he said. "And if we're going to stay around, they'd (government) better start helping us more than they do now."

Organizations: Public Utilities Board, Regulatory and Advisory Services, NYMEX Esso NDP Member Consumer Group for Fair Gas Prices Trans Canada Highway Visa

Geographic location: North Atlantic, Baie Verte, Hampden Junction St. John's East Newfoundland

  • 1
  • 2
  • 3
  • 4
  • 5

Thanks for voting!

Top of page

Comments

Comments