Competition Bureau statement regarding the acquisition by Superior of Certarus

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Gatineau, May 31, 2023 – The Competition Bureau announced today that it has entered into a consent agreement with Superior Plus Corp. (Superior) that resolves the Commissioner of Competition’s concerns related to Superior’s proposed acquisition of Certarus Ltd. (Certarus).

The Bureau was notified of Superior’s asset and share purchase agreement with Certarus on January 12, 2023. The proposed transaction is valued at approximately CAN$1.05 billion. Superior and Certarus are over the road distributors of propane and natural gas, respectively. Propane and natural gas can be used for heating and power generation applications. The Bureau determined that the proposed transaction would likely result in a substantial lessening of competition for the retail supply of portable heating fuels (propane, natural gas) for industrial customers in Northern Ontario.

The consent agreement requires Superior to sell eight propane distribution hubs in Northern Ontario, including customer contracts and associated operating assets at each hub. The Commissioner is satisfied that Superior’s commitments under the agreement will resolve the competition concerns in Canada arising from the proposed transaction.

The Bureau’s investigation relied on feedback and data from third party stakeholders, as well as documents and data supplied by Superior and Certarus. This statement summarizes the approach taken by the Bureau in its review of the proposed transaction.Footnote 1

Background

Superior is a publicly traded company headquartered in Toronto and is active in both Canada and the United States. In Canada, Superior is a vertically-integrated retailer of propane, supplying residential commercial and industrial customers. Superior’s over the road distribution model relies on (i) its Canada-wide network of propane distribution hubs that house large bulk storage tanks; and (ii) a fleet of smaller propane tanks that it leases to retail customers for onsite storage. These smaller storage tanks remain at the end-user’s location for the term of the lease, and are periodically refilled by Superior from a nearby hub.

Certarus was a privately owned company headquartered in Calgary and is active in both Canada and the United States. In Canada, Certarus owns six natural gas compression hubs, three in Alberta and three in Ontario. Each compression hub is tied into a third-party natural gas pipeline. From this network of hubs, Certarus distributes natural gas, in compressed form, to retail customers that lack direct access to a natural gas pipeline.

At each compression hub, the pipeline gas is compressed as it fills specialized “tube trailers” designed to hold natural gas under high pressure. The tube trailers are then transported over the road to the end-user’s location where the natural gas is depressurized as it is used. Unlike with propane distribution, natural gas customers do not have dedicated onsite storage that is refilled by Certarus. Rather, they lease the tube trailers, which remain at the end-user’s location until they are emptied, and then the trailers are cycled back to a nearby compression hub for refilling.

While Superior has access to a wide range of tank sizes to match the particular demands of residential, commercial and industrial customers, Certarus’ distribution model is based on maximizing the efficient use of its trailer fleet by focusing on supplying high volume industrial customers. High volume customers cycle through trailers more quickly, which increases their utilization and reduces idling time.

Competition Analysis

The Bureau’s review focused on the overlap between Superior and Certarus’ distribution networks in Northern Ontario. Although there is also overlap between the merging parties in Alberta and Southern Ontario, based on stakeholder feedback and review of documents, those markets are supplied by a sufficient number of alternative suppliers and therefore likely do not pose a substantial competition concern.

Certarus has two compression hubs in Northern Ontario, one to the west in Red Rock, and the other to the east in Timmins. Superior has 14 distribution hubs in Northern Ontario.

Superior and Certarus each supply portable heating fuels (propane and natural gas, respectively) over the road to industrial customers in Northern Ontario that lack direct pipeline access, including mining, construction and forestry customers. For example, mines can use either propane or natural gas for underground heating during winter, although there is a cost to convert equipment when switching between propane and natural gas.

Superior and Certarus compete to supply portable heating fuels to industrial customers where their respective trade areas overlap. Over the road distribution costs can limit the trade area of a particular hub. For example, a hub located in northwestern Ontario likely cannot competitively serve a mining customer located in northeastern Ontario, and vice versa. However, a mining customer located between northwestern or northeastern Ontario (e.g. in the Wawa or Marathon region) could likely be served by either Certarus’ hub in Red Rock or its hub in Timmins. Therefore, depending on customer location, Superior and Certarus compete in Northern Ontario, including in northwestern Ontario, northeastern Ontario, and in the Wawa and Marathon region.

Based on documents and stakeholder feedback, Superior and Certarus are each other’s closest competitor for the supply of portable heating fuels to industrial customers in Northern Ontario. Further, there is a limited number of alternative suppliers in Northern Ontario.

The Bureau also concluded that barriers to entry are high for the supply of portable heating fuels to industrial customers. With respect to the over the road distribution of natural gas, barriers to timely, likely and sufficient entry include significant capital expenditure, expertise with respect to compression and depressurization technology, and access to a limited supply of specialized tube trailers. With respect to the distribution of propane, barriers to timely, likely and sufficient entry include significant capital expenditure, a hub network (including sufficient bulk storage capacity) to reduce over the road distribution costs, and access to rail terminals to cost competitively source propane in bulk.

The Bureau concluded that the proposed transaction would result in a likely substantial lessening of competition for the retail supply of portable heating fuels (propane, natural gas) for industrial customers in Northern Ontario given the overlap between the Parties is characterized by significant rivalry, a limited number of alternative suppliers, and high barriers to entry.

Remedy

In order to remedy the Commissioner’s competition concerns, the consent agreement registered with the Competition Tribunal requires Superior to sell its propane distribution hubs in Fort Frances, Dryden, Thunder Bay, Geraldton, Marathon, Wawa, New Liskeard and Porcupine, along with customer contracts (other than certain national account customers) and all associated operating assets, including rail terminal assets in Thunder Bay and Porcupine. Superior’s supply of propane to industrial customers in Northern Ontario is predominantly serviced from these eight distribution hubs.

The Commissioner is satisfied that the consent agreement will resolve competition concerns in the market for the retail supply of portable heating fuels to industrial customers in Northern Ontario.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case by case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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