Industry Committee on June 13th, 2007

[Colin Carrie, Conservative, Oshawa, ON]

How would you judge that?

[Jane Savage]

It's interesting that you say “excessive”. Maybe Sonia can answer this. I don't think making money is evil, but there is a level of profit that....

The main thing here is that consumers understand where the profit is being made. Our members, the retailers, are often assigned that blame, and it's not retailers who are making the money; refiners are making the money.

I'll turn it over to Sonia.

[The Chair, Conservative, James Rajotte]

You have about 30 seconds.

Ms. Marcotte.

[Sonia Marcotte]

Take a look at the financial reports issued by the major oil companies, for example: in 1999, refinery profit margins were about 5¢ or 6¢. They were already making money back then with those kinds of margins. So, one can assume that 5¢ or 6¢ is a reasonable profit. However, it is when that starts to rise that profits become excessive and, right now, profit margins were about 25.7¢ in May. I believe that can certainly be deemed excessive.

[Colin Carrie, Conservative, Oshawa, ON]

If you have government regulations that cause increased refining or—

[The Chair, Conservative, James Rajotte]

We're over time here, Mr. Carrie. I apologize.

[Colin Carrie, Conservative, Oshawa, ON]

Okay.

Thank you very much.

[The Chair, Conservative, James Rajotte]

We'll go to Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman.

Ms. Marcotte, a little earlier, you quoted global data showing that there were 189 firms that own 324 refineries. In 2005, there were 55 firms and only 148 refineries. Do you have data for Canada?

[Sonia Marcotte]

In Canada, I believe the number went from 44 to 17 refineries. It's very similar, in terms of the proportion, to what there is in the United States, because the data you referred to are U.S. data.

[Robert Vincent, Bloc, Shefford, QC]

Do you believe that the 17 remaining refineries are more efficient, in terms of their refining capacity?

[Sonia Marcotte]

I haven't looked at that. It is quite possible that production levels per refinery are higher, but if they claim to be more efficient, that should normally bring the costs down, rather than the opposite. What we're really talking about here is market concentration, because there isn't enough competition in that market where prices are very high. It's the same thing in the United States, and that is reflected here in Canada.

[Robert Vincent, Bloc, Shefford, QC]

Mr. Quintal, I would ask you the same question. You mentioned that refineries are operating at 88 per cent of their capacity, as opposed to 93 per cent. Do you think that this is creating artificial pressures on the consumer—in other words, by reducing the refining volume, demand is created, and as soon as an unforeseen event occurs, there is a shortage of gasoline and the price rises?

[Frédéric Quintal]

There is no doubt that a refinery owner who is producing, say, 100,000 barrels of oil a day and sees that he is making more and more profit by maintaining a stable production… One may wonder why that company would really not be concerned about losing its market share if it's maintaining the same level of production and profits are going up, something which is not happening in other sectors.

We talked about the fact that there are fewer refineries. In Quebec, one of the example of that would be Ultramar, in Saint-Romuald, whose production capacity rose, over the years, from 160,000 to 200,000 barrels a day, then to 216,000 barrels a day into 2003, and increased again by 20,000 barrels. The number of refineries has decreased, but some have increased their capacity, possibly because of technological improvements. Also, on September 3, 2003, Petro-Canada announced the closure of its Oakville refinery, to avoid having to comply with the new sulphur content regulation in Canada. It gave up production of 85,000 barrels a day in exchange for a 15,000 to 20,000 barrel a day increase in production at the Montreal refinery. That represents a deficit of 65,000 barrels a day. I think it's important to remember that particular event. Petro-Canada said at the time that, in order to comply with the new sulphur content regulation, it would be looking at $250 million in conversion costs, whereas dismantling the Oakville refinery and increasing production at Petro-Canada's Montreal refinery cost the same amount of money.

[Robert Vincent, Bloc, Shefford, QC]

What do all of you think of the Bloc Québécois' recommendations? The first is to levy a $500 million surtax on oil company profits. The second is to repeal the accelerated capital cost allowance for oil sands investment when the price of crude exceeds a threshold of between $40 and $50. The government announced that measure in its last budget, but it will only apply in three years' time. The third recommendation is to repeal the changes made in the tax system with respect to natural resources in 2003, which allow oil companies to reduce their tax liability by an extra $250 million a year. The fourth recommendation is to make the oil companies pay for any environmental damage they cause through the creation of an emission cap, coupled with a carbon tax and a permit trading system. What do you think of those recommendations that have been made to the government with respect to the oil companies?

[René Blouin]

My comment is that there is already abundant evidence that the oil companies can afford to pay more taxes. We see that in their annual reports, which indicate record profits year after year. You also talked about special levies that would apply to refineries. I would just like to remind you that in Quebec, there was a « budget crisis » last week. We witnessed an arm wrestling match which ended with the government deciding to add $150 million to its budget to meet the demands of the Parti Québécois, which allowed the budget to pass.

In order to fund that budget item, the government has decided to increase taxes on oil companies and banks from 9.9 to 11.9 per cent. As far as I know, there has been no hue and cry in Quebec about this and I don't think that, if the government does decide to take a little more money out of the pockets of those who have a great deal more than others, it is unlikely that many people will criticize them for being unfair.

[Frédéric Quintal]

With respect to taxes and the oil companies, in terms of what has been happening elsewhere in the world, Hugo Chavez, as part of his oil revolution in Venezuela, raised the oil royalty from 1 to 16 per cent. They talked about that in the documentary that was shown on RDI last night. Also, in Canada in recent years, as is pointed out in a report release by the Parkland Institute from 1992 to 1997, entitled “Giving away the Alberta Advantage”, while other countries maintained high oil royalties, the Klein administration discounted oil royalties to such an extent that it deprived itself of almost $3.5 billion in revenues on a yearly basis. Another example is the announcement, on September 3, 2003, of the closure of the Petro-Canada refinery in Oakville. That decision may have been retaliation — unfortunately, we can only engage in conjecture on that — but that same year, Mr. Ernie Eves' Ontario government increased the tax rate for processing companies. Why would this have been retaliation? Because the announcement of the Oakville closure was made the same day the provincial Conservatives launched their election campaign in Ontario — September 3, 2003.

[The Vice-Chair, Liberal, Dan McTeague]

Mr. Vincent has gone over time. Mr. Bev Shipley is up next.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

Welcome, and thank you for coming out to this interesting discussion on gas prices.

In 2003 the Competition Bureau and the chair at that time, the competition commissioner, said: “But we have never found any evidence of any kind of collusion except at a very local level, usually a bunch of stations getting together and trying to maintain the price at a certain level.” Do you believe there's collusion, and can you speak to me about whether you believe that at this time there is collusion and price gouging in the industry?

[Jane Savage]

No, I don't believe there is.

[Sonia Marcotte]

I don't believe it was either. They don't need to talk to each other. There is only a small number of players. There are few market players and, as a result, they know full well that by keeping inventories fairly low, they will put pressure on prices. They don't need to discuss it, because it is to their advantage to limit the volumes of oil on the market.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Do you believe the Competition Bureau should be investigating this again, that government should be moving ahead and having another investigation into the price of gas?

[Sonia Marcotte]

No, I don't think so. That is not the issue.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

You talked a little bit, Ms. Savage, in your comments about an early warning system, and I said it was an interesting talk that you had about it. Why have we not done that?

[Jane Savage]

I think the genesis of the system in the United States was for defence purposes, first of all. This is a judgmental comment, but I think that in terms of fuel products the U.S. takes their security of supply extremely seriously. We in Canada, because we are a net crude oil producer, in the past have taken a fairly laid-back approach to that in comparison to the United States, but the fuel shortage has pointed out that crude oil has nothing to do with the issue; it has everything to do with refining capacity.