Subcommittee on Oil and Gas and Other Energy Prices Committee on Aug. 27th, 2008

[Peggy Nash, NDP, Parkdale—High Park, ON]

The oil company profits are up significantly this year. Do you not think there's any correlation between the large increases in oil company profits and the price that people are paying at the pump?

[Peter Boag]

No, I think oil company profits today are largely being driven by the exploration and production side of their businesses and the high global price for crude, which isn't set in Canada.

[Peggy Nash, NDP, Parkdale—High Park, ON]

So there's no correlation between the increase in profits in the oil companies and the increase in price that Canadians are paying at the pumps.

[Peter Boag]

Without looking specifically at individual financial reports of publicly traded companies, I think there's a pretty good correlation between profits and the price of crude.

[The Chair, Conservative, James Rajotte]

One brief question, Ms. Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Do you think there's justification, Ms. Savage, for an increase in the price of crude not just being passed on, but additional prices being tacked on that consumers pay at the pumps?

[Jane Savage]

No. The world price of crude oil determines the cost that a refiner pays for that crude oil and so determines a refiner's cost, and then at the wholesale level it is the world price of gasoline, for example, that sets those rack prices where most retailers buy. I think that's fairly transparent. For example, the chart in my presentation shows each of those components as this builds up.

[Peggy Nash, NDP, Parkdale—High Park, ON]

How do you track the additional—

[Jane Savage]

It's from crude oil, no question.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Nash.

We'll go to Mr. Eyking, please.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you, Mr. Chair.

From looking at the presentations so far this morning, it would seem to me that the oil producers who are drilling the oil and the oil-producing countries are making all the money, and the refineries and everybody down the line aren't, and that the refinery capacity is not going to increase any time soon because there's capital outlay and there's not enough return. That's my assessment here.

I'd like to talk about inventories, and inventories in regions. We have a big country, we have remote regions, and we have only a few players.

I'll tell you what happened in our region last year. We ran out of furnace oil for a couple of weeks. We live on an island. There's only one storage facility. There are different retailers who draw from it, but at the end of the day there is one storage facility.

You talk about keeping inventories low or even moving inventories around. So if you have a big company and they see a better market somewhere, that could be happening. But at the end of the day, you have a region that's without furnace oil, and if there are ice conditions around or ships not available....

Now, provincial governments are asking how they can avoid this happening or how they can interfere with it. How do you see us dealing with this? Can you penalize these people for not having oil available, because technically they have a monopoly, or do you encourage them by helping them with their inventories? How do you see us overcoming this, with a big country like ours, few players, and remote areas that could be without furnace oil if they're moving their inventories around?

That's for Mr. MacLean or whoever wants to answer the question.

[Warren MacLean]

Again, it's back to inventory. I think you're putting too much importance on the ability of inventory to solve all problems. It will only solve the problem for the duration that you have the inventory. That may work at times; it may not work at other times.

In my experience, I was in one situation in my total career where there was a supply situation in Ontario. There was maybe anecdotal evidence of run-outs by customers, but I don't think consumers didn't get the product they needed; they actually got the product they needed, and I think the industry has done a very good job.

As to an earlier question about Quebec, with one refiner, I think the industry has rationalized the infrastructure, which has lowered the cost to the consumer, because the cost to the industry has gone down.

So if you want to add cost to the industry and see prices go up, mandate inventories.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

You said they did a good job. Well, they didn't do a good job in our region, because we didn't have furnace oil. And of course we don't want to pay more than we should, for other regions—

[Warren MacLean]

Did any houses run out?

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Yes, they did.

[Jane Savage]

If I can add to that—

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Just very briefly, because I'd like to split my questions.

[Jane Savage]

Sure.

Just quickly, there are areas in Canada that are very vulnerable to inventory run-outs, there's no question. With the concentration of refiners, with running at low inventories, and with limited infrastructure to bring imported product in, especially in the winter, there is a deep concern on our members' part for exactly what you speak of.

[The Chair, Conservative, James Rajotte]

Mr. McTeague, you have a minute.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. MacLean, you mentioned earlier that Canada is a price taker. I think you all agreed with that. I'm wondering, however--given that the United States every week provides, through its Energy Information Administration, a Weekly Petroleum Status Report very similar to the one that the Liberals had proposed and that was scrapped when the Harper government took over--how you would categorize the current situation in the United States, in which Canada plays a very important role, whether it be for crude or for natural gas.

We have here every week at the same time, and it should happen at around one o'clock—in fact, it's probably out already—an inventory report that gives accurate information. It shows that for the past five years our numbers, whether for distillates, diesel, gasoline, or residuals—take your pick—are pretty much within the same area. In other words, the inventory reflects supply and demand and it reflects the amount of actual inventory that's out there.

How is it possible, if we're still with what we've been doing for the past five years, that we would see prices double, using your theory that this is very much a function of supply and demand? How can you say that, when you know that the inventory numbers haven't changed a whole lot? Supply is where it should be, and demand is where it should be, and yet prices are almost double where they were two years ago.

[Warren MacLean]

Inventory is only one piece of the equation. Production is the other piece. Production goes up and down with demand.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Excuse me, Mr. MacLean. The inventory report includes every week the amount of production and the amount of demand. The inventory is the final analysis.

[Warren MacLean]

I don't understand the question, then.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

In the United States, which consumes 52% of all of the transportation fuels in the world, inventory right now is at a maximum level. It's not low, it's not high; it's within the five-year bandwidth. And yet the prices for commodities such as crude have doubled. Your proposition is that there's no problem with supply and demand. I submit to you that if inventory is where it should be—that is, supply and demand, inventory and production, are exactly where they've been over the past five years, within the bandwidth.... Why have prices doubled?

I'm sorry, Chair. Go ahead.

[The Chair, Conservative, James Rajotte]

Mr. McTeague, you will have another spot coming up.

Mr. MacLean, do you want to respond to that briefly?