Industry Committee on June 11th, 2007

[The Chair, Conservative, James Rajotte]

You have 20 seconds in total.

[Colin Carrie, Conservative, Oshawa, ON]

We've heard that refining capacity needs to be improved. Can you explain what role the government would have in improving refining capacity in Canada? Would an increase in the number of refineries actually decrease the cost of gasoline in your opinion?

[Sheridan Scott]

Again, I think that's probably a question our colleagues are more suited to answer. It doesn't really deal with the anti-competitive acts that we might see in the refining industry. We're very focused on whether we think these folks are getting together and somehow reaching an agreement with respect to what an appropriate margin or price is.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you for appearing here again.

When Petro-Canada closed its Oakville refining station, did that help or hurt consumers in Canada?

[Richard Taylor]

It didn't have a huge impact, if we look at the kind of production. In 2005 production was 43.9 billion litres. Following the closure in 2006, production was 42.3 billion litres. It didn't have a huge impact.

If you look at the latest Statistics Canada reports that I pulled off today, our total production of motor gasoline is basically 42,000 cubic metres, so it has come back up. There has been some additional capacity added.

[Brian Masse, NDP, Windsor West, ON]

With regard to that situation we saw in Ontario, because of the Esso fire and Petro-Canada now having to rely upon that for distribution, didn't that give consumers less choice, especially during that time? Wouldn't we be concerned if they took it offline altogether? We didn't seem to care when Oakville was divested upon; why would we not care if we reduced further capacity with Esso? It's not even up to a full amount right now.

[Richard Taylor]

If you're talking about the fire at the Petro-Canada refinery in February, the Competition Act can't protect refineries from fires. They happen to be very dangerous places. That is a natural event that would not be within anybody's control. They do happen quite frequently. They are dangerous places. That was a blip for about a month that I think it went through, and supply did come in and rectify that balance.

But unless the industry is prepared to have 10%, 20%, or 30% idle capacity...refineries run at about 95% capacity, they cost about $5 billion to make, and they take 12 years to make. There has been an announcement recently that Shell would like to build a new refinery in Sarnia. If that refinery gets built, such an event as you described would not affect the price the way it did in February.

[Brian Masse, NDP, Windsor West, ON]

Right, I guess the point is that we make consumers more vulnerable to the situation by not caring when the investment isn't made. Quite frankly, with the billions of dollars of profits that are going up, there should be some expectations.

If I can shift a little bit, though, Ms. Scott, to some of your comments with regard to supply and demand, I guess this is a little bit of the frustration. Say, for example, the weather gets hot and Canadian Tire is selling pools. If they start to run low, they don't jack up the price another 10%, 15%, or 20% because they know that they're going to have this product in July and August, and so forth. They don't do that. With gasoline stations, you argue that it's economics 101, but year after year we know that customers are going to use that product more at that particular time.

Maybe you can correct me if I'm wrong, but along the 401 corridor, during the last 10 years—aside from refining capacity—when things were operating normally, I don't know of any time they've actually put up signs saying they're out of gas, because people need to get to their cottage or are going on a trip or going down to Florida.

So why shouldn't the industry self-correct this problem that we know happens every single year over regular holidays? Why is it acceptable for them to raise their profits when they actually still have reserves on hand at that particular time?

[Sheridan Scott]

Again, businesses often respond to an actual or anticipated shortage. So even though they may have some fuel in the ground, they may be anticipating that they're going to be facing shortages and they may take pricing actions in response to that.

[Brian Masse, NDP, Windsor West, ON]

Have you ever investigated whether that shortage has ever occurred during those times periods when they've actually spiked up the price?

[Sheridan Scott]

We are looking at the amount of gas available and how it corresponds to price spikes, and that is exactly what attracts our attention when we see price spikes. That's when we wade in to see if we think some anti-competitive acts might have taken place, whether there's agreement amongst competitors or whether it's simply people taking advantage of a situation.

As I say, the Competition Act is not there to preclude businesses from taking advantage of a particular situation.

[Brian Masse, NDP, Windsor West, ON]

But has there ever been a shortage demonstrated by these companies during those holidays peaks, that they actually have had a shortage and had to rely upon raising prices to defer people...? When prices go up, to a certain extent, people then rush out and get more, driving it up further. But has there ever been a time that you're aware of, has there been an investigation, when they could actually argue the argument that you're presenting in front of us—economics 101, supply and demand—that they have actually had a shortage over holidays, specifically when they've had to raise it beforehand?

[Sheridan Scott]

I think this is a demand issue rather than a supply issue. We're looking at increased demand prior to a weekend.

[Brian Masse, NDP, Windsor West, ON]

But if they have sufficient supply, then why should that give them the right to actually then throw the price up?

[Sheridan Scott]

Because the way supply and demand works, one anticipates what one can obtain in the marketplace where there's high demand, and prices go up when there's more demand.

[Brian Masse, NDP, Windsor West, ON]

Okay, but have they ever been able to demonstrate that this is a supply issue for them, based upon those fears of those demands?

[Sheridan Scott]

Well, we look into whether we think there's anti-competitive behaviour as opposed to whether they're taking appropriate pricing action. As I said, our act doesn't outlaw people from making a profit. What it says is that they can't engage in anti-competitive behaviour. That would either be fixing prices or abusing a dominant position to lessen competition in the marketplace. What we would be looking for is proof of that before we would take action to investigate.

[Brian Masse, NDP, Windsor West, ON]

I guess the problem here is that once again we accept their argument but we do nothing to deal with the habitual problem we have. I just find that unacceptable.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Masse.

We'll go now to Mr. McTeague.

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

Thank you, Mr. Chairman.

Thank you, witnesses, for being here today.

Madam Commissioner and Deputy Commissioner, I have to tell you, I wasn't one who was keen on another discussion on gasoline, but perhaps we could look at some of the figures, Mr. Taylor, that you provided.

I was reluctant to have this discussion, simply because I believe the proverbial horse has left the barn with respect to mergers that have taken place. My colleague Mr. Masse has cited the number of refineries that have shut down, from 44 all the way down to 17, with a number of those refineries running at very high utilization rates. I too saw some of the Esso stations out of gasoline again today--I have no doubt perhaps as a result of some dislocation at the Nanticoke refinery. Suffice it to say that we are at a point now where there is very little supply, or supply sufficient to meet the demands in our country, and of course, in our region.

Mr. Taylor, you had pointed out some numbers that I'm sure the independent gas retailers are going to be interested in challenging you on. But you've said that the normal retail margin was somewhere around...did I hear 20¢ a litre? Is that what you're saying?

[Richard Taylor]

No, not the retail margin, the wholesale margin.

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

I'm sorry, I thought you were referring to retail.

[Richard Taylor]

No, the retail margin is around 5¢, as you know, a litre.

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

Your wholesale margin, though, over the past, certainly since Katrina, has probably doubled, I think it's fair to say, reflecting the international market. Would that be fair to say?