Reimbursement for Business Use of Personal Vehicles
Study prepared for The Treasury Board of Canada Secretariat
By Corporate Fleet Services
1 Fuel Price Update Synopsis
Corporate Fleet Services (CFS) has been mandated by the Treasury Board of Canada Secretariat to perform the Annual evaluation of per-kilometre Reimbursement Rates for government employees that are required to use their personal vehicles while performing government business. Furthermore, the periodic impact of varying fuel prices was to be evaluated quarterly by producing three additional Fuel Price Updates per year. The present document represents the Update for August 2021 (for publication on October 1st, 2021).
The latest Annual study established Reimbursement Rates for each Canadian Province and Territory after performing a comprehensive analysis of all vehicle operating expenses. These rates were presented in the Reimbursement for Business Use of Personal Vehicles Report, dated November 2020 (for publication on January 1st, 2021). Two subsequent Fuel Updates were produced for February 2021 (for publication on April 1st, 2021) and May 2021 (for publication on July 1st, 2021) respectively.
The present Update reflects the impact of current fuel prices on the Travel and Commuting Rates’ recommendations made in the Annual Report with a focus on average pump prices of gasoline by Province and Territory. The prices were averaged for each Province or Territory for the three months prior to the release of the current Update (the months of June, July and August 2021). All prices are given in dollars per litre.
This Update also presents the latest recommended rates of reimbursement for consideration by the Treasury Board Secretariat in dollars per kilometre. Federal and Provincial sales taxes were also researched to determine if there were any recent changes that could have had an immediate impact on the total costs of vehicle ownership and operation.
For the period June - August 2021 fuel expenses represent 21.4% of the total cost of vehicle operation (reflected in the Travel Rates) or a Canadian weighted average of 11.8 cents per kilometre. The present Update identified slight increases in average gasoline prices across Canada, which had a minimal impact on the Reimbursement Rates. As a result, both Reimbursement Rates for the ten Provinces increased by a maximum of 1.0 cent relative to the previous Fuel Update (May 2021 for publication on July 1st, 2021). For the Territories, Nunavut remained constant, while the Northwest Territories and the Yukon saw an increase for both rates of 1.5 cents per kilometre.
2 Fuel Prices
2.1 Energy Market Context
Over the past three months, global oil prices have exhibited increased volatility. Prices rose steadily in May and June before peaking in early July with West Texas Intermediate (WTI) at $75.25 USD per barrel on July 13th while Brent reached $77.16 on July 5th. Due to rising uncertainty, prices exhibited increased fluctuations in July, however, since the beginning of August, they have been on a downward trend, presently recording their lowest level in three months. As of August 20th the WTI stands at $62.14 USD per barrel and the Brent is at $65.18 USD per barrel.
Meanwhile, gasoline prices have been robust, generally following the crude oil patterns but exhibiting significantly less volatility. As a result, the average prices for gasoline in Canada rose in May and June but have remained relatively stable since early July hovering around $1.40 per litre. As of August 12th the Canadian average gasoline price was at $1.43 per litre.
This report aims to provide an overview of the current market situation and presents the latest estimates and forecasts pertinent to the energy market conditions. Nevertheless, similar to previous reports, caution must be exercised when considering the data available due to the rapidly changing nature of global markets.
The Coronavirus Pandemic
Since the last Fuel Update (May 2021, for publication on July 1st, 2021) the vaccination efforts have increased significantly and as a result, the number of vaccine doses administered globally has tripled, reaching 4.56 billion at the time of writing of this report. However, the path of the pandemic has been quite varied across different countries, in large part determined by the unequal vaccine availability roughly split between advanced economies and developing countries.
In advanced economies vaccine rollouts have been strong, although the rate of new vaccinations has dropped significantly. For example, the pace of vaccinations in Canada was rapid from March until June. Since July the pace of vaccinations has slowed down significantly. As of August 20th, nearly 64% of Canadians have been vaccinated. In terms of infection rates, a significant decline in the number of new COVID-19 cases was observed across North America, as well as in most of Europe in the early summer. This led to the lifting of restrictions that in turn, boosted overall economic activity. However, this also has resulted in a moderate uptick in cases since July.
Meanwhile, developing countries have been struggling with vaccine availability and affordability resulting in a much slower pace of vaccination. For example, in India only 9% of the population has been fully vaccinated. This in turn, has led to growing new infection cases in many Asian countries (e.g. Thailand, Malaysia and China), where stringent restrictions remain in place.
Global Crude Oil Demand
The global economic recovery this summer has been uneven, determined by the path of the pandemic in each Region. According to the latest World Economic Outlook (WEO) Update from July 2021 published by the International Monetary Fund (IMF), the global economy shrank by an estimated 3.2% last year. However, the recovery has been more robust than previously projected and thus the growth rates have been revised up and are now projected to be 6.0% this year and 4.9% in 2022.
While the global recovery rates appear strong there is a great divide within certain groups of countries. Under normal conditions the growth of more developed countries is considerably slower than that of developing countries, as the latter are working to “catch up” with the advanced ones. For example in 2019, advanced economies as a group grew by 1.6%, while emerging markets and developing economies grew by 3.7% (more than twice as fast).
Currently, advanced economies are on a path to grow by 5.6% this year while emerging markets and developing economies by 6.3% (only about 12.5% faster than developed countries). As the IMF report from July 2021 notes: “Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalization of activity later this year (almost all advanced economies) and those that will still face resurgent infections and rising COVID death tolls.”
The U.S. economic growth has once again been revised up for 2021 and 2022. The U.S. had very strong vaccination rates in the first half of the year leading to a significant reduction in COVID-19 cases and resulting in lifted restrictions in a large part of the country. As a result, the U.S. (along with the U.K.) is projected to have a growth rate of 7.0% in 2021, the highest among advanced economies. According to the IMF projections, the U.S. is expected to continue a solid recovery in 2022 with a growth rate of 4.9%, reflecting the improved health metrics and the anticipated legislation of additional fiscal support. This improved economic activity in the U.S. has spilled over to their trading partners, including Canada.
The Canadian economy has been recovering quite well despite a third wave of COVID infections in April and May. The rapidly rising vaccination rates and subsequently declining infection rates in June and July have led to a general reopening in the second half of summer. The IMF and the Bank of Canada estimates as to the health of the Canadian economy have been converging, with the IMF increasing their projections and the Bank of Canada moderating their projections for 2021. The IMF expects that Canada’s growth rate will be 6.3% this year and 4.5% in 2022. According to the Monetary Policy Review (MPR) published by the Bank of Canada in July 2021, the current projections stand at 6.0% for 2021 (a reduction of 0.5 percentage points from the April 2021 report) and at 4.6% next year (a 0.8% increase as compared to the previous report). These projections are based on assumptions about: “broader immunity, fewer Covid-19 cases and the resulting easing of restrictions that are expected to lead to a strong pickup in GDP growth over the second half of 2021.” A note of caution: since publishing of the report, the infections rates have again begun to rise and their impact will influence the projections in the following reports accordingly.
Emerging markets and developing economies are projected to grow by 6.3% in 2021, a downward revision by 0.4 percentage points as compared to the WEO report from April 2021, largely due to significant markdowns in emerging Asian economies. At the same time, the growth in Latin America and the Caribbean has been revised up by 1.2 percentage points this year due to positive revisions both in Brazil and Mexico, now projected to grow 5.3% and 6.3% respectively this year.
Consumer prices in most countries have been rising more rapidly than in previous years mainly due to pandemic-related supply and demand mismatches and are thus expected to return to pre-pandemic ranges next year. The latest data from Statistics Canada indicates that in July the inflation rate rose to 3.7%, the highest level since May 2011, with prices for goods rising more rapidly than for services. Automobile costs were up 5.5 per cent, which the agency says was partially because of a global shortage of semiconductor chips. The Bank of Canada projects that inflation will likely remain at or above the bank target inflation rate of 3%, through the rest of 2021, due to temporary factors related to the pandemic. The rate of inflation is expected to ease to 2% in 2022.
The recovering economic activity has been driving a rapidly increasing demand for crude oil and its products. According to the Monthly Oil Market Report from August 2021, the OPEC estimates that global oil demand will be 96.6 million barrels per day (mb/d) this year, an increase of 6.0 mb/d over 2020. Next year, the demand is projected to grow by a further 3.3 mb/d or 3.4%, to 99.9 mb/d. Similarly, the International Energy Agency (IEA) projections currently stand at 96.2 mb/d this year, and a further 3.2 mb/d increase to 99.4 mb/d in 2022. Notably, the IEA latest report notes that the demand for oil rapidly reversed its course in July due to the resurgence of the Coronavirus Delta variant and the new restrictions, particularly in China (the world’s largest importer of oil). This has already had a significant effect on China’s refining activity, which fell in mid-August to its lowest output in 14 months.
While the overall global economic outlook is strong, the IMF in its World Economic Outlook (WEO) Update from July 2021 notes that “the recovery, however, is not assured even in countries where infections are currently very low as long as the virus circulates elsewhere” and significant proportion of population remain susceptible to the virus. As a result, risks to global economic recovery remain elevated, particularly as they relate to new emerging Coronavirus variants as well as the progress of global vaccine rollouts.
The OPEC's reference basket price (calculated as a weighted average of prices of crude oil produced by OPEC countries) averaged $73.53 USD per barrel in June 2021, the highest level since October 2018. Over the past three months the average price of crude has risen by 16.3% as compared to April or 35.2% more than in January of this year.
Global Crude Oil Supply
Responding to the recovering demand, the monthly global oil supply rose to 95.6 mb/d, a 2.4% increase as compared to April 2021. With the OPEC+ easing production limits and other countries ramping up crude extraction, the rise of global oil supply is expected to continue.
In early summer, the demand for oil outpaced supply, creating a draw on crude inventories and providing a boost to global oil prices. As a result, the U.S. Energy Information Administration (EIA) reported that crude inventories were falling steadily week-over-week in May and June, reaching the lowest levels since the beginning of the pandemic.
During the pandemic, the OPEC+ coalition, consisting of 24 oil-producing nations, had maintained a tapered output to aid in balancing the markets. With the prospects of recovering demand, in April, the group begun to increase production. In July, global oil price volatility increased as the OPEC+ coalition was negotiating the next phase of their agreement. The extended negotiations led to fears that an agreement would not be reached and that all of the 5.7 mb/d of the OPEC+ output restraint would flood the markets. This resulted in a rapid crude oil price decline in mid-July. WTI fell by 11.7% in one week and Brent recorded a 10.3% decline. On July 18th, the group reached a new agreement to boost oil supply every month by 400,000 b/d, starting in August.
The U.S. crude oil production peaked in 2019 at 12.3 mb/d before falling by 1.0 mb/d in 2020. Despite the rising demand, the U.S. Energy Information Administration's (EIA) projects that the production will slide by a further 0.2 mb/d to 11.1 mb/d this year, before regaining some of the losses in 2022.
On the other hand, Canada’s oil production has been rising this year particularly in Alberta. Based on 2020 production data by the EIA, Canada is the world’s 4th largest oil producer and Alberta supplies more than 70% of it. In the first half of the year Alberta’s production has averaged 5.7% higher than during the same period last year. Notably, this is higher than during the same time period in 2019 exceeding pre-pandemic levels by 1.8%.
Canada’s exports of crude oil have been very strong as well particularly given the increased crude oil price. The Canadian crude oil price benchmark is the Western Canadian Select (WCS). In 2019 the WCS sold at an average discount of about $15 USD per barrel to the WTI. With the demand returning, oil prices have been on a rise and the WCS has been steadily increasing along with the WTI and the Brent. Furthermore, the WCS has moved closer to the WTI and has sold at a discount of around $11 USD per barrel year-to-date. As a result, the total value of crude oil exports from Alberta between January and June 2021 increased by 36.8% as compared to a year ago.
As Alberta oilsands developers increase production, the IHS Markit report issued in August 2021 estimates that flows between Canada and the U.S. could grow by as much as 0.65 mb/d by 2025. The firm forecasts a steady growth would add a total of 0.9 mb/d by 2030. Despite the increasing production, Canada’s crude oil future is facing challenges.
As the awareness of the environmental impact and risks associated with crude oil production, transportation and increased use grows, oil companies must overcome certain difficulties. One of the ongoing issues over the last several years has been transportation, specifically via pipelines which are the fastest and most cost-effective mode of transportation. New construction projects have faced increased scrutiny and public objections. The much-debated Keystone XL project – a pipeline that would have connected western Canada with Gulf Coast refineries, was officially cancelled on June 10th, 2021.
While most of Canada’s oil production happens in Alberta, the majority of the refining capacity is located on the coasts. However, there is no pipeline connecting Alberta’s oil sands with refineries in Ontario or Quebec. As a result, the oil is routed through a pipeline in the U.S. and then back into Canada. This is referred to as reexporting. From all the crude oil refined in Canada, about 55% is either imported from the U.S. or reexported. In fact, from the 1.08 mb/d coming from the U.S, reexports make up about 45%, according to the IHS Markit report of August 2021.
In the last several months, Enbridge’s Line 5 from Wisconsin to Sarnia, Ontario that transports 540,000 barrels of oil and liquified natural gas daily, supplying half the oil to Ontario and Quebec, has become a subject of much debate. The pipeline runs under the Straits of Mackinac connecting Lake Michigan and Lake Huron for a 7.2-kilometre stretch. The concern is that any leak in the water could cause an environmental catastrophe. This pipeline is an integral part of Canada’s oil transportation network and thus any possible disruption in its operation could cause issues throughout the oil and petroleum product supply chain.
Most of the oil produced in Canada is exported to the U.S. and a significant part of it is refined in Washington state refineries and then distributed along the U.S. West Coast. Whatcom County in Washington state has two such refineries: Phillips 66 and BP Cherry Point. This summer, for the first time in the U.S., Whatcom County passed a law that permanently prohibits any future development or even upgrades of oil and gas infrastructure in the area. This is likely to affect expansion plans in Canadian oil fields for the next several years.
In May, the IEA issued a report titled "Net Zero by 2050: A Roadmap for the Global Energy Sector" discouraging any new oil and gas investments after 2021 as one of the cornerstones for reaching the goal of net zero-emissions (climate neutrality) by 2050. The report was developed in preparation for the upcoming United Nations' Climate Change Conference (COP26) that is being held in November 2021 to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change. While the report sends a signal to the industry to rethink their future plans it has received mixed reviews not only from companies, but also from certain governments.
2.2 Gasoline Prices Across Canada
This summer gasoline prices have exhibited a relatively typical pattern – rising in the spring and early summer due to increasing demand and leveling during July and August as the demand reaches its peak and refineries begin preparations to produce less expensive winter-grade fuel in the upcoming months.
While Canadian provinces have only recently seen a consistent lifting of restrictions, the U.S. begun reopening much earlier in spring. As a result, the demand for gasoline south of the border has been very strong throughout the summer thanks to Americans travelling, returning to workplaces, and taking up other pre-pandemic activities. In fact, the demand for gasoline in the U.S. in June 2021 was so strong that even with the increased refinery outputs, gasoline inventories were being depleted more rapidly than previously expected thus increasing the prices at the pump. According to the U.S. Energy Information Agency (EIA), U.S. gasoline consumption averaged 8.6 million barrels per day (mb/d) in the first half of 2021, 3.4% more than in the same time period the last year but remaining 7.5% below 9.3 mb/d level in 2019. This is attributed to a relatively high share of the workforce still working from home. In a yearly perspective, the EIA forecast U.S. gasoline consumption to average 8.8 mb/d in 2021, a 10% increase from 8.0 mb/d in 2020.
Subsequently, the three-month average price for gasoline in Canada between the previous Fuel Update (May 2021, for publication on July 1st, 2021) and the current Fuel Update has increased by 7.7%. In a year-to-year perspective, the three-month average price is 32.8% higher than a year ago.
An increase in gasoline prices has been observed across all Canadian Provinces and Territories ranging from 5.8% in Saskatchewan to 9.7% in Alberta, with the exception of Nunavut, where the average change is only 0.5%, dating back to the increase in carbon pricing back in the spring.
In June, much of the Northern Hemisphere experienced a heat wave and Canada’s West was particularly affected. Record breaking heat in B.C. shattered dozens of temperature records and broke Canadian standards twice. In addition to generally increasing demand for energy to stay cool, the heat also affected the work of refineries leading to further tightening of supply of gas, pushing the prices up. As a result, the highest price for gasoline in the three-month period was recorded in Vancouver, British Columbia at $1.734 cents per litre in early July, a hefty 9.5% jump during a 16-day period. The three-month lowest price of $1.184 cents per litre was recorded in Sarnia, Ontario on June 28th, 2021. It must be noted, however, that due to the Territorial government’s unique policy to set price for fuel in Nunavut, the current price of $1.113 per litre that has been in effect since April 1st, 2021, is the lowest price of gasoline anywhere in Canada.
Nevertheless, due to the number of factors affecting gasoline price, the trend of future prices at the pump is extremely difficult to predict with any degree of confidence.
Prices of gasoline, in Canada, include all applicable taxes. Prices vary significantly across Canada, mainly due to the difference in the types and amounts of taxes being charged on fuel in different Provinces and Territories. The present Update calculated the average prices of regular gasoline charged at the pump. The fuel price data was primarily obtained from Natural Resources Canada via Kent Marketing, based on daily published fuel prices for 78 locations across Canada. This data was verified against additional databases that similarly track fuel prices all across Canada.
Consistent with the methodology of the Annual Report, when determining average gasoline prices per Province or Territory, we have used weighted averages according to population in order to better conform to reality. In this manner, metropolitan population centers account for a greater portion of the total average price compared to smaller municipalities.
The following is a table with average regular gasoline prices for all Canadian Provinces and Territories, in dollars per litre, for the period June - August 2021:
|
Province/Territory |
Current fuel price |
July 1st, 2021 Fuel Update Report fuel price |
Price |
|
Alberta |
$1.306 | $1.191 |
$0.115 |
|
British Columbia |
$1.605 | $1.476 |
$0.129 |
|
Manitoba |
$1.293 | $1.198 |
$0.095 |
|
New Brunswick |
$1.335 | $1.241 |
$0.094 |
|
Newfoundland and Labrador |
$1.495 | $1.409 |
$0.086 |
|
Nova Scotia |
$1.324 | $1.247 |
$0.077 |
|
Ontario |
$1.340 | $1.252 |
$0.088 |
|
Prince Edward Island |
$1.339 | $1.251 |
$0.088 |
|
Quebec |
$1.367 | $1.280 |
$0.087 |
|
Saskatchewan |
$1.290 | $1.222 |
$0.068 |
|
Northwest Territories |
$1.454 | $1.328 |
$0.126 |
|
Nunavut |
$1.113 | $1.108 |
$0.005 |
|
Yukon |
$1.471 | $1.358 |
$0.113 |
Fuel price data was extracted for a period of three months (May 17th to August 12th, 2021) in order to reflect current gasoline price trends. Subsequent reports will focus on three-month periods following the period covered in the present study. Average gasoline prices per litre and per Province or Territory were found to vary between $1.113 in Nunavut to $1.605 in British Columbia with a Canadian average of $1.384, an increase of 9.9 cents from the previous Fuel Update (May 2021 for publication on July 1st, 2021).
Gas prices in Nunavut are typically set for a full calendar year and rarely exhibit any changes. The latest change occurred on April 1st, 2021 and the Territorial average was determined to be $1.113 for the current study.
For illustration purposes, Graph 1 displays gasoline prices for the main metropolitan areas for a one-year period (August 2020 - August 2021).
Also for illustration purposes, Graph 2 displays crude oil prices for three benchmarks – WCS (Western Canadian Select), Brent and WTI (West Texas Intermediate) for a one-year period (August 2020 - August 2021).
2.3 Sales Taxes
For the current Update, research was performed to see if there were any relevant changes to Federal and Provincial sales taxes that could have an immediate impact on the Reimbursement Rates. As of the date of this Update, no changes were observed in sales taxes anywhere in Canada as compared to the previous Annual Report. Moreover, no changes are foreseen at this time for the immediate future.
3 Impact of Fuel Prices on Reimbursement Rates
3.1 Fuel Consumption
In calculating the fuel costs contribution to the total vehicle operating costs, the methodology employed in the Annual Report was strictly adhered to. Fuel consumption for every vehicle model in the study was thus combined with average prices per Province or Territory to determine the fuel portion of operating costs, based on an average of 20,000 kilometres per year.
3.2 Updated Reimbursement Rates
For comparison, the following table provides updated Travel and Commuting Rates, as well as rates previously calculated for the Annual Report (November 2020, for publication on January 1st, 2021), the February 2021 Fuel Update (for publication on April 1st, 2021) and the May 2021 Fuel Update (for publication on July 1st, 2021):
Current Fuel Update Reimbursement Schedule (in dollars per kilometre)
|
Travel Rate |
Commuting Rate |
|||||||
|
Province/Territory |
Current Fuel Update |
July 1st 2021 Fuel Update |
April 1st 2021 Fuel Update |
Jan 1st 2021 Annual Report |
Current Fuel Update |
July 1st 2021 Fuel Update |
April 1st 2021 Fuel Update |
Jan 1st 2021 Annual Report |
|
Alberta |
$0.510 |
$0.500 |
$0.485 |
$0.485 |
$0.205 |
$0.195 |
$0.180 |
$0.180 |
|
British Columbia |
$0.560 |
$0.550 |
$0.530 |
$0.525 |
$0.240 |
$0.230 |
$0.215 |
$0.210 |
|
Manitoba |
$0.520 |
$0.510 |
$0.495 |
$0.495 |
$0.210 |
$0.205 |
$0.185 |
$0.185 |
|
New Brunswick |
$0.545 |
$0.535 |
$0.520 |
$0.515 |
$0.215 |
$0.210 |
$0.190 |
$0.185 |
|
Newfoundland and Labrador |
$0.580 |
$0.575 |
$0.555 |
$0.545 |
$0.230 |
$0.225 |
$0.205 |
$0.195 |
|
Nova Scotia |
$0.550 |
$0.545 |
$0.525 |
$0.520 |
$0.215 |
$0.210 |
$0.190 |
$0.185 |
|
Ontario |
$0.575 |
$0.570 |
$0.555 |
$0.550 |
$0.215 |
$0.210 |
$0.195 |
$0.190 |
|
Prince Edward Island |
$0.530 |
$0.525 |
$0.510 |
$0.500 |
$0.220 |
$0.210 |
$0.195 |
$0.190 |
|
Quebec |
$0.550 |
$0.545 |
$0.530 |
$0.525 |
$0.225 |
$0.220 |
$0.205 |
$0.200 |
|
Saskatchewan |
$0.515 |
$0.510 |
$0.495 |
$0.495 |
$0.210 |
$0.205 |
$0.185 |
$0.185 |
|
Northwest Territories |
$0.645 |
$0.630 |
$0.615 |
$0.615 |
$0.290 |
$0.275 |
$0.260 |
$0.260 |
|
Nunavut |
$0.605 |
$0.605 |
$0.605 |
$0.605 |
$0.250 |
$0.250 |
$0.250 |
$0.250 |
|
Yukon |
$0.630 |
$0.615 |
$0.600 |
$0.595 |
$0.295 |
$0.280 |
$0.265 |
$0.260 |
Note: All figures were rounded up to the nearest half-cent.
The impact of gasoline prices on the Reimbursement Rates was minimal for the present Fuel Update. In comparison with the May 2021 Fuel Update (for publication on July 1st, 2021), both the Travel and Commuting Rates displayed a maximum increase of 1.0 cent per kilometre for the Provinces, whereas for the Territories both rates have seen a maximum increase of 1.5 cents. Canadian weighted averages have increased by 1.0 cent for both rates. They are now at 55.5 cents per kilometre and 22.0 cents per kilometre respectively.
Fuel contributes on average 11.8 cents per kilometre to total operating costs, ranging from 11.1 cents in Manitoba and Saskatchewan to 17.6 cents in the Yukon. The socio-economic factors affecting the global energy market are hard to forecast and it is difficult to make any prediction regarding gasoline prices for the next three-month period. However, any future changes will be reflected in the subsequent Annual Report.