Industry Committee on June 13th, 2007

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

Do you think some of the changes over the last few years should have some change in our philosophy?

[Jane Savage]

Should we in Canada have a change in philosophy? I believe we should get more intense about the issue of security of supply of petroleum products, yes.

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

Do you have a comment, Sonia?

[Sonia Marcotte]

I have nothing to add.

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

You talked about having no accountability of inventory. I think those were the words. What is the best way to get started on that? I know you touched on it earlier, but if we're going to do it, what's the best direction that you would have for us?

[Jane Savage]

I think we need to look at the way the U.S. does it, first of all. They have regions, for example. Obviously we need to choose a lead ministry on it, and probably Natural Resources Canada is in the best position to do that, although again that's my opinion. We need to look at regions, look at where the most vulnerable regions are, and perhaps start with one region. For example, the landlocked regions, the Prairies and Ontario, would be the places to start, but I think also places like Quebec. Even though we have an independent terminal there, sometimes we have winters when the river is completely blocked with ice and we can't get ships in, so Quebec also is vulnerable, although one could argue that it is less vulnerable. You could take that approach.

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

If anyone else has another opinion, that would be great. I'm just trying to get some questions in, because I've only got one go here.

[The Chair, Conservative, James Rajotte]

You have a little over a minute left, Mr. Shipley.

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

Okay. I'm interested, because in business we talk about the high investment in terms of having more refining capacity, yet when I look at Mr. Quintal's figures, Esso's profits in this particular one--the refining margins--are records. They are over 100% in six years. So I'm wondering what the barrier is. It doesn't matter if it's $100 million or $50 billion if its margins are huge. If margins are large, what's the barrier, do you believe?

[René Blouin]

There are a number of conditions that need to be met in order to carry out such a project. First of all, you need the financial wherewithal. That is not easy to come by. Building a refinery can cost $2, $3 or as much as $4 billion. That's my first point.

The second point is that you have to have not only the ability to get it built, but also the ability to keep it operating subsequently when you are coming up against the big oil giants, whose financial resources are practically unlimited.

That's exactly the reason why, when we proposed that a new refinery be built in Quebec, we suggested that governments rely on their international relations to work with oil producing countries that are on a fairly strong financial footing and could get involved in a project such as this.

If partners such as these were willing to come on board, such a project would not only be feasible, but it would work. If we don't have solid financial partners, such as the ones I've mentioned, our fear is that once the refinery is built, it would suddenly face fierce competition and profit margins in that particular sector systematically drop for a number of years. Without really solid financial resources, the business could fail fairly quickly.

[The Chair, Conservative, James Rajotte]

I'm sorry, we're way over time here, Mr. Shipley. I apologize.

We'll go now to Mr. Masse, please.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

One of the things we haven't talked too much about is updating the pumps themselves in terms of the retail stations and where that's going to go in the future, because we have new biofuels being introduced.

In the United States there's a program to introduce E85. In Canada here, I think there are only two stations that can actually do that, so how do we get public policy around this? What suggestions do you have, or are there any, to introduce this into the market here? If we go our current route, we can't even get refining capacity increased, let alone investment into the actual stations themselves. I think the producers have a responsibility to do that. Do you have any suggestions on how that can be done through public policy? The United States has a co-payment program that General Motors actually has been pushing as well.

Do you have any thoughts in terms of introducing that infrastructure into our country?

[Jane Savage]

Not really.

[Brian Masse, NDP, Windsor West, ON]

No, okay.

It's a huge thing. We want to get the cleaner technology on the road. We have record profits at the pump, we have record payouts to the CEOs, and we've got record payouts even to stockholders. And on one of the interesting decks that we have--and I don't have it here--when they looked at the price of crude it had doubled from 1996 to 2007. The taxes were relatively the same, but refining and marketing percentages had tripled.

We have no plan whatsoever to introduce the infrastructure necessary to cleaner technologies to the stations. Is this something, where the industry has no plan, that we have to mandate, or should we mandate it?

[Sonia Marcotte]

In fact, as regards new products such as biodiesel and biofuels, the independent distributors began marketing them long before governments asked them to. Ethanol has been for sale in Quebec for some 15 years now, and the same probably applies to Ontario. The independent distributors are the first ones to have offered it for sale. Nowadays, some independent Quebec distributors are starting to sell biodiesel, as part of a number of pilot projects. They don't just sit back and wait; they are the ones launching these projects. I guess what they need is support.

[Jane Savage]

Just to add to that, absolutely. For example, the single E85 site in Ontario is a UPI site, which is an independent site. That particular independent has taken a big risk by putting that site in. With the price of ethanol where it is, which is high relative to gasoline, he has to charge a lot more for his E85 than he does for his conventional gasoline. So business risk is there, but diversification and marketing planning is extremely important to independents. That's why we are always on the cutting edge of biofuels.

I think your question is best directed at the refiners.

[Frédéric Quintal]

Let me give you an example in another area. With profits growing exponentially in the market, there has been some scientific testing with a view to developing products such as liquid hydrogen.

Several years ago in California, Shell set up a number of service stations, or added the necessary infrastructure to existing service stations, to be able to supply vehicles that run on hydrogen. Personally, I think that was a good public relations exercise, to let people know that attempts had been made to market hydrogen. The network is limited to just a few service stations. People who want to give up gasoline in favour of hydrogen unfortunately have no choice but to live in the area where those service stations happen to be. It is as though the company wanted to show its good will through this public relations exercise, but really had no intention of going any further with it.

Also, when gasolines and biofuels come onto the market, we may want to avoid the same mistake in terms of large numbers of refining formulas. California has its own formula for CARB gasoline, and the American Midwest and Illinois have their formula for producing ethanol. Formulas for determining the right sulphur content in gasoline were developed in 1999. When the sulphur content regulation came into place in 2005, we were not on the same schedule as the Americans. There was a six-month lag. So, with new, more environmental fuels coming onto the market, we will have to be careful to try and avoid ending up with too many formulas. I think we will need to look more to standard, consistent products.

[Brian Masse, NDP, Windsor West, ON]

You mentioned California.

[The Chair, Conservative, James Rajotte]

You have just a few seconds, Mr. Masse. Quickly, please.

[Brian Masse, NDP, Windsor West, ON]

How will their proposal to link greenhouse gas emissions and the production of oil and gasoline products affect the market? Has there been any analysis on that? I know it's just a proposal now, but what's the position of the industries with regard to that? Because that will eliminate some products in their market if it goes forward.

[The Chair, Conservative, James Rajotte]

Ms. Savage.

[Jane Savage]

Yes, it will do that. We haven't done a lot of analysis on that yet, but certainly from an environmental point of view it's a step forward.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Masse.

We'll go to Mr. McTeague.

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

Merci encore. Thank you.

I want to pick up where Mr. Carrie left off with respect to the contention—and I've heard it many times—that gasoline in Canada is less expensive than the United States ex-tax. To clarify the specifications between Canadian gas, which is from coast to coast pretty much the same, and the U.S. may cost quite a considerable amount for the Government of Canada to undertake, given that there are so many qualities and specifications of gasoline. Is that correct, Mrs. Savage?

[Jane Savage]

There are different specifications by state in the U.S. The one that I was addressing is sulphur in gasoline, which is consistent across both countries.