Gas prices set to rise 10"/litre: Refiners Industry blames bureaucratic mixup for expected increase in imports -- and cost Tom Spears The Ottawa Citizen

Canadians will face higher gasoline prices -- up to 10 cents a litre more -- and idle refineries because Health Canada and Environment Canada couldn't agree on a clean-fuel deal, two national associations of refiners say.

Major refiners and small independents have joined to warn of disruptions as motorists will have to rely on convoys of fuel trucks -- likely as many as 1,000 a day -- ferrying gasoline to Canada from Detroit.

The warning comes after a three-way flurry of letters between the industry and Health and Environment officials. Health Canada first suggested a deal, the industry agreed, but Environment Minister David Anderson refused to go along.

The issue is sulphur in gasoline. Found naturally in petroleum, it causes pollution such as smog and acid rain when fuel is burned.

Canada has proposed reducing the amount of sulphur allowed in fuel. The government has been negotiating with industry over how quickly to get to its goal of 30 parts per million of sulphur in gasoline.

The proposed regulation was to do this in two steps: reaching 150 ppm by 2002 and the final target by 2005.

Many refiners in Canada think they can do this. But the industry said two of its giants, Petro-Canada and Imperial Oil, can't meet the first stage. They depend more heavily on Canadian crude oil, which is naturally high in sulphur, and these companies say they can't change their refining equipment in time for the 2002 stage.

The industry offered to go the whole way in a single step by 2004 as a compromise.

That's not fast enough, said Health Canada, which is acting as the health expert in the issue. But the department said it would agree with a single-step reduction to reach the final goal by July, 2003. This, it said, could be an option for companies that couldn't meet the original schedule.

Mr. Anderson offered that 2003 target date to the industry. "If you were prepared to accept this, I would be prepared to consult with Canadians on this basis," he wrote in an April 27 letter. But his letter didn't add a crucial point: Unlike Health Canada, he insists that every company must follow the same schedule, with no room for options.

The industry, which now says it didn't realize the two departments wanted different things, wrote back to accept what it thought was a choice -- one schedule for those companies that could meet it, an alternative schedule for the rest.

Then, late Wednesday, they got another letter from the minister, accusing them of trying to pull a fast one.

Forget the 2003 target date, Mr. Anderson told them: "I am bringing this matter to a close. It is time to get on with the job and assure Canadians that this Government and the industry are taking the steps necessary to improve the air they breath (sic)."

His letter adds: "Frankly, I am disappointed."

His spokeswoman now says Mr. Anderson was never floating an optional deal because having a one-step cleanup for some companies and two steps for others would be too hard to enforce.

But the industry insists this is the first time anyone told them, despite "extensive" negotiations.

"We were always only talking about two companies" following the 2003 target, said CPPI vice-president Bill Simpkins. "It certainly was nowhere in any of the discussions that this (single schedule) would apply to everyone.

"How could we at all decipher what might have been in his (Mr. Anderson's) mind when we were negotiating something entirely different?"

There's even more confusion from the government. Health Canada says both cleanup schedules would have the same health benefits. But Environment Canada says the 2003 cleanup date would have a reduced clean air benefit.

Now, says CPPI president Alain Perez, the industry's biggest players won't be able to meet the new regulations that begin in 2002. Instead he said Petro-Can and Esso will be forced to import U.S. gasoline, which is lower in sulphur, for the two to three years starting in 2002.

This is going to drive up all Canadian wholesale prices, he said in an interview yesterday. "It may have consequences on supply."

Michael Budd of the association representing independents (such as Mr. Gas and MacEwen's) says the switch to imported fuel to meet sulphur regulations would hurt his members badly.

Independents rely on surplus gas from the major refiners, he said. But if the big refiners are relying on imports, there won't be a surplus.

"There are definitely going to be disruptions (in supply) and we're the guys who are going to get shorted," he said.

He estimates that the price of gasoline could jump 10 cents a litre because of supply problems. That's based on a study that found California prices were 37 cents per U.S. gallon above normal from initial problems involving a switch to cleaner fuels.

In the long run the price increase here is expected to be more like one cent a litre.

Trouble for independents would hit Ottawa motorists hard, he said: Between 20 and 26 per cent of the Ottawa market is supplied by independents.

And he said there's no infrastructure for suddenly shifting to masses of imported gasoline: "The Seaway's closed three months of the year and the pipelines run the wrong way."

"This has become a political issue rather than a health issue," he added.

Mr. Perez said his association will continue to push for a different solution, preferably the one suggested by Health Canada in the first place.

"We're not quitting on this one," he said. "We can't quit."

http://www.ottawacitizen.com/national/000512/4089808.html

-- Martin Thompson (mthom1927@aol.com), May 12, 2000