For the Love of Driving - North American's Appetite for Gasoline

By: Gordon Jaremko

A long-time observer of the Canadian oil and gas industry and the political structures that govern it, Gordon Jaremko has been, at various times, an author, an editor of Oilweek, a national correspondent based in Ottawa, a provincial political pundit based in Edmonton and a daily business reporter in both Calgary and Edmonton. Gordon was introduced into the Canadian Petroluem Hall of Fame in September. 

Article originally published in the November 2015 issue of Oilweek. Can be viewed online with a subscription: http://www.oilweek.com/index.php/digital-editions/672-wider-view 

With a keen appetite for oil-burning mobility, consumers spend more on driving than eating

The nation’s largest refinery responds to markets. Consumer behaviour across Canada and the U.S. says Irving Oil made a winning bet this fall by spending $200 million on the giant plant in its hometown of Saint John, New Brunswick.

The firm’s Operation Falcon employs nearly 3,000 workers for 60 days on turnaround maintenance to keep production going at 320,000-bbl/d pace that yields 75 per cent of Canadian gasoline exports.

The big refinery job overlaps with the annual global festival of concern over burning fossil fuels: the 2015 World Climate Summit, which will be hosted in Paris, November 30 to December 11, by the United Nations Framework Convention on Climate Change.

The eco-assembly whips up torrents of publicity by drawing a pack of officials, observers and news media that is at least as big as the labour force raised by Irving. But both crowds are small compared to daily activity on Canadian and American roads. 

Big Oil, including 91-year-old Irving, grew up on mass desire that shows no sign of fading away. Fossil fuels satisfy a fourth public need - mobility - that the auto-industrial age added to the ancient essentials of food, clothing, and shelter.

Mobility still overwhelmingly means cars and trucks with internal combustion engines despite decades of sermons on the eco-virtues of public transit, electric vehicles, bicycles and walking, according to data kept by Statistics Canada and its American counterparts.

The number of motor vehicles registered to travel on Canadian roads hit 23.6 million in 2014 and kept growing as 2015 shaped up as a fine sales year for the auto industry.

The national motor pool has 0.9 vehicles for every Canadian old enough to have a driver’s license or learning permit, or 70 per cent of the population of 35.7 million.

The love of cars, sport utility coaches, minivans and light trucks is slightly stronger in the U.S. where 250 million registered work out to 1.2 vehicles for everyone in the 66 per cent of the national population of 321 million that is old enough to drive.

During good economic times, when consumers have enough confidence in their livelihoods to give their tastes free rein, Canadians spend more to drive than eat.

“Retail sales grew 4.6 per cent in 2014, the highest annual growth rate since 2010,” Statistics Canada reported this summer. 

“Food and motor vehicles continue to account for the largest shares of retail spending. For the first time since 2007, the share of retail spending for new and used vehicles, 17.5 percent, was slightly higher than that of food at 17.4 per cent. The percentage of the retail dollar spent on new and used vehicles has been steadily climbing since its all-time low of 14.8 per cent in 2009, while the portion spent on food has remained relatively unchanged since 2011.”

In the U.S., California Governor Jerry Brown and Democrat state senators from affluent constituencies dropped a legislative proposal to enforce a 50 per cent cut in petroleum use by 2030. The decision was attribute to industry advocacy and representatives of struggling regions in the lower state assembly house. Economic realism prevailed over eco-idealism.

Manufacturers are still testing market interest in zero-emission alternative vehicles by trying to find enough potential buyers to justify investing in factory production lines. Harley-Davidson, for instance, this summer dispatched a semi-trailer of prototype electric motorcycles on a road show across Canada called Project LiveWire. 

Zero-emission Harley’s retain the brand’s image of strength. The environmental bike is a husky black powerhouse. The electric drive train replaces the fossil-fuel-era motorcycle roar with a stimulating whir that fans liken to a muffled jet turbine.

Marketers who led supervised test rides said the new bike would only be for sale at an as-yet-undisclosed future date after further refinement. The current version  runs for two hours. Fully recharging the battery takes three hours. The target price range is US$30,000. Evolution of the production version will be rider-led, says the company.

Big Oil is no slouch at feeling out markets and adapting to trends.

Irving stayed on top by leading the refinery pack into the introduction of unleaded fuel in 1977. In 2000, a $1-billion plant overhaul purged sulphur out of the Saint John plant’s product years ahead of requirements. The investment enabled the expansion of exports to California, the most strictly regulated state. 

Innovation continues. Imperial Oil has told its shareholders that a bitumen separation process introduced at its new Kearl mine cuts oilsands carbon emissions to the average for all types of oil production.

Clean industry initiatives act on an insight with a long pedigree in Alberta. Pollution control is not just a cost – it also pays. Peter Lougheed gave the idea official stature when the former Conservative regime was young and introducing environmental measures from beverage container recycling to mandatory mine reclamation.

“In the area of environment, my interest had been at first simply the balance between development of resources and maintaining the quality of life,” Lougheed told the legislature in a budget debate during his first term as premier in 1971.

“The rather enthusiastic minister of environment [Bill Turko, the first Tory to hold the cabinet portfolio] had brought in a new factor in this equation. It’s a fascinating factor. It links free enterprise and job development with environmental control,” Lougheed said.

“When you’re prepared to move forward and be doers and press on, administrative problems will get ironed out fully to the satisfaction of our people and end up in a very meaningful way with not just better quality of life but a lot of people very usefully employed.”