Thank you, Mr. Chairman. I would like to thank Committee members for allowing me to make this presentation today.
This marks the fourth time in four years that I have taken part in the parliamentary process. I have already seen most of you.
I have been an observer of, and stakeholder in, the oil sector since the year 2000. Two years ago, I published a book on the subject, which presents an overview of the period from 2000 to 2005 with respect to what occurred in the oil industry in Canada.
The purpose of today's meeting is to explain recent fluctuations with respect to refining, primarily in April and May of 2007. I will give you a quick overview of the current status of refining margins.
In the 1980s and 1990s, there was a decline in refining capacity, an increase in demand and a common pricing system established for refined products. Starting in 1999, demand increased. Capacity also increased with demand, and since then, demand has been affected by speculation. This is what is known as refining margin fluctuations.
The refining margin system has been in place since June 1, 1985. In Quebec, Esso published this information in the media on Friday, June 21, 1985, and the same announcement was made in Toronto on July 2, 1985. I explain all of this in a documentary that will be released in the fall and which I have been working on now for several months.
Nowadays, oil prices are closely associated with the price of gasoline. No one in the oil industry has rushed to explain to the media the difference between oil listed on the stock exchange and refinery products, which are also listed on the stock exchange. For ordinary Canadians, all of that is still quite vague, ambiguous and confusing when, in actual fact, it is really quite simple. I will give you an example of a raw material on another market, which may be easier to understand. Oranges are listed on the stock exchange, but orange juice is not. There is competition.
I would refer to the important announcement made in June of 1985, because it was sharply criticized in the O'Farrell report. Mr. McTeague, I recall that you worked on that report. It made recommendations to the Conservative government in December of 1985 with a view to preventing the implementation of a new system of public pricing of refined products, ensuring that Petro-Canada, which was a Crown corporation at the time, would not follow the industry's lead.
Unfortunately, however, those recommendations were simply ignored. We are now suffering the full consequences of that, which are associated with the Free Trade Agreement. The pricing of refined products in Canada has to be in step with American pricing on the Nymex Exchange.
Since April and May of 2007, what has the speculative value been solely based on? Well, every Wednesday, the U.S. Department of Energy publishes the inventory levels of crude oil and refined products. If the inventory level does not meet the expectations of analysts, the result is speculation that the price will either rise or fall. Inventories are not in danger; they simply go from 37 to 36 days, and not from two to three days. There is no danger whatsoever, but this is enough to attribute a speculative value to a product that has no value-added for the consumer.
On April 30, on Nymex, the price of a gallon of gas, used as a reference for a litre of gas here in Canada, was $2.44, which is the same price as on August 30, 2005, during a period of high gas consumption, as a result of people travelling on vacation and Hurricane Katrina hitting some 16 refineries in New Orleans. The months of May and August 2007 marked the between season low. Refineries are not producing heating oil at that time and the period of strong demand for the summer holidays has not yet begun. However, the same record price of $2.44 US a gallon was achieved.
Where are we heading? Well, if that is not a demonstration that a crisis is about to occur, nothing is. Compared to the 1980s, the word “crisis” doesn't seem to be part of the vocabulary of government leaders, and that is unfortunate. It probably has something to do with globalization or the development of the wonderful world of communications and public relations.
It may be a good idea to consider more forceful political intervention. Some politicians who are here today have criticized me in the past for raising the spectre that goes along with that kind of terminology. Indeed, such interventions have been made in the past, and they were costly. Let me give you an example. The Auditor General's Report clearly stated that the cost of the imported oil subsidy program between 1974 and 1985 was $5.8 billion.
Some said that this caused the Canadian debt to balloon, and I was criticized as a result. On June 1, 1985, Canada's debt stood at $190 billion, and I do not believe that this factor was responsible at the time for causing it to swell. However, some people may have forgotten to mention that the national oil policy allowed Alberta oil producers to force everybody living west of the Outaouais area to buy their oil at a price that exceeded the world price for some 13 years, from 1960 to 1973.
The Bertrand report analysis, about which oil company supporters neglect to mention that they did not pass the test, shows that in 1980 constant dollars, refineries billed Canadian consumers an extra $5.3 billion. Yet nobody talks about that. In that regard, I mentioned more forceful intervention earlier. The most recent great invention coming out of the Conservative Party was the decision, last year, to cut the GST by 1 per cent. It would seem that is as far as they are prepared to go in terms of giving consumers a break. However, in 2005 alone, between January and August, the before-tax price of the same product fluctuated by 114 per cent. Between 1999 and 2007, it was subject to fluctuations of some 234 per cent.
If those percentages are not adequate proof that there is starting to be a real crisis for consumers… Here is another example. The industry was in crisis when, in March of 1986, the price of oil dropped considerably. The Conservative government decided at the time to eliminate or to cut more quickly than planned an oil and gas tax of a value of some $2 billion, and to force consumers to pay an additional tax of 3¢ on gasoline.
In 1986, we helped the industry, which was in crisis, and yet the only thing done since then is the 1 per cent cut in the GST. In February of 2003, Mr. Manley's budget gave the oil industry a massive tax cut. It allowed provincial royalties to once again be included with expenditures, and lowered the tax rate from 28 per cent to 21 per cent. I did the number crunching for only one item, and I noted that oil royalties in Alberta in 2003, 2004 and 2005, at a tax rate of 21 per cent, meant a tax reduction of $6.5 billion for the oil companies. And yet, the documentation prepared by the Minister of Finance talks about $165 million for that three year period.
If you are having trouble finding ways to come to the aid of consumers, why is it that you are finding it so easy to give huge tax cuts to this industry, which seems to be enjoying incredible increases in profits year over year?
Thank you for your kind attention, Mr. Chairman.