Chairman Sweet and colleagues, former colleagues, and perhaps even future colleagues, it's a great opportunity and honour to be here. Thank you for the invitation as to appear as a witness, and thanks in particular to my colleague who's replaced me, Mr. Chisu, a very fine man. I look forward to great things from him ahead.
Chair, it's clear that there's arguably no other issue that gathers more attention, save and except the weather, than the price of fuel and the price we pay at the pumps. While there have been a myriad of inquiries and investigations, as has been indicated before, and of course plenty of ink that has been spilled commenting on the general inconclusiveness of those previous inquiries and investigations, the public remains unconvinced that the price they pay is justified. And they remain cynical about yet another series of inquiries. So you have your work cut out. Let me help you.
Above all, public angst with prices can be summed up in one word: volatility. It is this concern that I believe the committee has the ability to address head-on, rather than engage in a fruitless and half-hearted attempt to merely pay lip service to a common and growing frustration. As many of you know, as a parliamentarian I attempted to draw attention to the anemic state of competition in several sectors of our economy, including the grocery, telephone, telecom, pharmaceutical, and downstream petroleum industries, as well as improve and amend Canada's Competition Act, which was, as you know, redrafted in 1986 to permit levels of concentration that would not be tolerated in jurisdictions like the European Union or in the United States.
Concentration today at the wholesale level for gasoline and distillates, which is diesel, means lockstep pricing in most major urban centres across this country, and ironically, for me, at tomorrowsgaspricetoday.com the ability to predict accurately tomorrow's price for fuel at the pumps. Nowhere else, to my knowledge, does this happen or can it happen, simply because it can't. Under the restrictive language of our Competition Act independent retailers were forced from the market in droves. I believe one of the witnesses previous to this, from Wilson Fuels, quite accurately pointed out the treble drop in the number of players by his company alone. Mergers and takeovers led to fewer players and a rationalization of refinery and terminal operations, which once provided the competitive infrastructure that kept a check on prices. Rather than meet new environmental fuel specifications set out over the years by the federal and sometimes provincial governments, some refineries, such as Toronto's last in Bronte or in Oakville, if you will, were simply mothballed and converted into a storage terminal fed by pipeline or by rail.
The closure last year of Shell's Montreal east refinery also impacted price, particularly here in eastern Canada, and contributed in no small way to price volatility as it terminated supply contracts with independents, replaced production by purchasing from other refiners like Ultramar, or simply opted to import product with a unique and higher--and in this case I would ask you to read more expensive--30 parts per million sulphur Canadian fuel specification from either Europe or the United States. As such, Canadians in eastern Canada have become--and I want to repeat this point, I can't emphasize it enough--net importers of petroleum product, and are, unlike a generation ago, when energy self-sufficiency was de rigueur, highly vulnerable to international price shocks or volatility created by excessive speculation in the commodities futures markets.
Just how serious the state of competition is in the refining of petroleum products remains a matter of speculation. Despite a noticeable decline in the overall number of vigorous and effective competitors who have exited or merged the market in the past 24 years, and with no significant increase in outputs from the remaining refiners, the prospect of shortage as a driver of higher fuel prices cannot be ruled out. Indeed, outside of tax and retail margins, something that's been discussed here as well, wholesale racks in most of our country tend to be well above--not the same, not below, but well above--U.S. racks and are identical among all refiners, unlike the U.S., where such a parallel movement would almost certainly invite an antitrust challenge in the U.S.
But as Canada has abandoned the equivalent of the US Weekly Petroleum Status Report which obtains from the petroleum industry, weekly accounts for all its products, any assessment of the real impacts of the wave of consolidation of the past score on consumers here, has been left to others to figure out with motorists here paying the freight for a lack of true oversight.
Colleagues, no serious talk of fuel prices should be entertained without first understanding that the traditional means of price discovery for commodities as important and strategic as food and energy has been radically altered through supply and demand values and the hedging of risk between producers and consumers.
In 2000 Wall Street convinced Congress to allow commodity trades to occur outside the jurisdiction of the Commodities Futures Trade Commission. This exemption from oversight, known as the “Enron loophole” for which the exemption was made, had predictable consequences.
As you may recall, there were bogus excuses on the state of the electrical and electricity markets in the U.S.; trades with no capital requirements whatsoever; and of course new unregulated platforms apparently had no restraint whatsoever on the question of position, and no question as to risk adversity. They drove the electrical and natural gas markets to prices beyond economic sustainability, and caused, as you recall, serious economic dislocation. That brings us to today. Incredibly, the loophole was never closed, and over-the-counter trade platforms have since proliferated, along with their distorted effects on price.
When folks--your consumers and constituents--pull up to gas pumps, they usually have a choice: regular, premium, or in some cases super premium. Regardless of the gas grade, however, everyone is now paying a premium--a Wall Street, over-the-counter, traded-derivatives premium.
Canada must be part of international efforts urged by the U.S. and Europe, as part of our commitment to the G-20 in Pittsburgh, to ensure oversight, competition, and transparency on all commodity trades. After all, given the 35% rise this year alone in energy costs to Canadians, and now 25% in food, would it be too much to ask that the price we pay reflect the real global supply and demand picture, rather than allowing some to imperil, through loopholes, our collective economic well-being?
If Parliament is serious about tackling the vexing matter of price volatility, it needs to modernize its thinking about the state of competition in many parts of this country, particularly at the refinery level. It must also avail itself of a weekly inventory report similar to the U.S. model, and clue in to the havoc wrought by excessive speculation in the unregulated swaps and derivatives markets.
I would also finally say--because it doesn't matter that I addressed this or that all of us have attempted this at various times--that we must recognize the implications of taxation. Taxation, particularly as it relates to ad valorem taxes such as the HST or the GST, tends to compound the situation. So governments as a routine have an obligation, and Parliament has an obligation, to recognize that as prices go up, so does the impact of tax and the windfall in revenues. That must be considered and should be considered now, so as not to hurt and affect Canadians.
I also want to point out a very interesting point with respect to my last comment on the question of futures, commodities, and excessive speculation. Today the U.S. released its weekly petroleum status report. As you know, the U.S. is the largest consumer of transportation fuel in the world. It tends to drive the supply and demand picture, so it's important that Canada be part of that. But this morning they reported that refineries there operated at 89.2% of their operable capacity last week. Gasoline production increased last week, averaging 9.5 million barrels a day.
If you want to see an example of the disconnect between supply and demand fundamentals and what is happening on the markets, you only have to look at the fact that tonight, most of the communities in eastern Canada will get a 2.2¢ to 2.6¢ per litre increase--higher supply, increase in price. If we don't understand how dysfunctional this market has become we will only continue to have these meetings; and more importantly, they will be predictably useless and irrelevant.
With those comments, I hope to further explore some of your questions and perhaps provide answers to some of the things you have collected over the past little while.
I thank you.
