Industry Committee on June 22nd, 2011

[Tom Huffaker]

Our view on that is largely that on the crude oil side we have an extraordinarily well-integrated and efficient North American market. It's not perfect, obviously, but it is unusually well integrated by global standards. Most of the time those transactions are happening in a relatively efficient manner.

Issues of distance to market and size of market drive much of that export to the United States. There's a fair amount of Canadian oil coming to central Canada. There's also a tremendous amount of Canadian oil going to the northern midwest, relatively proximate, and into the western U.S. I think it's largely driven by efficiencies related to transport costs.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

I have a question for the Competition Bureau representatives. You explained in your presentation that you did intervene in a price-fixing situation in Quebec. What were the specific factors involved in that situation that caused you to intervene?

[Richard Bilodeau]

We were made aware of a situation in those local municipalities where there were allegations that local retailers were fixing prices and talking to each other, so we conducted an investigation. We used the investigative tools we have at our disposal, including wiretaps and the ability to search businesses. We were able to build our case and at the end of the day lay charges on the individuals who participated in price-fixing in those four municipalities.

As Ms. Johnson said in her statement, we were able to obtain a number of guilty pleas that resulted in significant fines and jail terms.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Braid.

Mr. Julian, you have five minutes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thanks to the witnesses.

I'll be sharing my time with Madam LeBlanc.

I have one question that I'd like to ask Mr. McTeague and Mr. Greenberger.

You may have heard that in the previous panel I cited a study that showed that on May 12 the oil industry was making an excess profit based on the per-litre price. That day in Toronto it was 25¢ per litre, based on that day's crude oil prices, exchange rates, and taking into account all taxes.

The estimate is that every one cent of price-gouging generates an excess profit of about $1 million per day. So that means we are looking at $25 million across the country in excess profit for that one day. That's money taken out of the pockets of ordinary families who are already stretched to pay their bills.

I'd like to ask both of you, do you feel that is a fair indication of the amount of price-gouging and excess profit that is currently affecting consumers in Canada?

Now I'll turn things over to Madam LeBlanc.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

My question is for Mr. Greenberger.

Thank you for a very informative presentation.

Experts have summarized that although the 2008 recession was not exclusively linked to a spike in gas prices, it was ultimately set in motion by the sharp increase in fuel prices for consumers. In your opinion, could the recent spike in fuel prices result in a second recession, or delay any economic recovery?

[The Chair, Conservative, David Sweet]

We'll go to Mr. Greenberger first, and then to Mr. McTeague.

[Michael Greenberger]

It is certainly the view in the United States, and I think it's the view of many of the leaders in the European countries, that if gas prices stay at their levels or--what we fear--go up, it will be a very, very bad disincentive to the economy, and may be the straw that breaks a camel's back that already appears to be very weak.

With regard to the price-gouging, in the 2008 bubble in the United States, essentially most regulators gave up on trying to prove that price-gouging had any influence. I think, as your Competition Bureau is suggesting, when you look at these price differentials--you could go 20 blocks in the United States and get a 70¢ differential--they all tend to be justified by supply and demand price consequences.

If we really want to break the back of this spike, we must do two things. First, we must get position limits in place. Canada has a role to play--as Mr. Sarkozy has just made clear, France has a role to play--by its influence in the G-20 and elsewhere.

Secondly, one thing we haven't talked about--I don't know enough about Canadian government to know where this responsibility lies--is that President Obama asked our justice department and all the regulators to look for manipulation in these markets. That isn't excessive speculation, which is just a fact you find: there are too many speculators, and they may have the best intents in mind. Manipulation is where people conspire to drive the price up.

A major manipulation case was brought in the last two weeks by the Commodity Futures Trading Commission, which is noteworthy, because Dodd-Frank made it easier to prove manipulation. That part of the statute will probably go into effect sometime in July or August. But the manipulation here was deemed to be so bad that the regulators brought it under the older statute, which makes it harder to prove.

What that means is that there are self-evident conspiracies among traders in this market. I can't give you chapter and verse on this, but I would say that whoever has responsibility for manipulation should be looking at the Canadian market. It would not surprise me at all that there are actors in the Canadian market who are manipulating.

Finally, you can say that western Canada is in great shape now because the price is so high. As Mr. McTeague said, the price went from $147 to $31 in six months. This is a bubble. This bubble will burst. The price will go back down. Western Canada will be hurt and eastern Canada will be helped if you look at it from a very narrow perspective.

From the perspective of certainty and production, this kind of volatility.... In the United States it was $65 in 2007, $147 in 2008, $31 in 2009, and now it's $100 in 2011. That is not a healthy market. It certainly doesn't reflect supply and demand.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Greenberger.

Now we will move on to Mr. Lake for five minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair--

[The Chair, Conservative, David Sweet]

Oh, I'm sorry, Mr. McTeague has a comment, although the time is actually over.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I don't mind letting him finish before my time starts.

[The Chair, Conservative, David Sweet]

Okay.

Mr. McTeague, can you give us a comment on that last question in about 30 seconds?

[Dan McTeague]

All right.

Mr. Julian, simply put, yes, it does demonstrate excessiveness. Of course refiners and others are in for the ride. If they can obtain tonight 23.2¢ a litre as a crude-to-rack spread, that's great when it only costs them 4¢ or 5¢ a litre.

It does have a dislocative effect, but not just in terms of those who are selling the product. Imagine those who have to buy the product, whether that be those in the coffee industry or whether that be airlines who are now going to have to either pass that on to consumers or cut more staff.

The reality is that this will undermine the economic vitality of our country, and if we don't clue in, we're only going to wind up hurting ourselves.

That's all I can do in 30 seconds, Chair.

[The Chair, Conservative, David Sweet]

That was great, Mr. McTeague. And it wasn't 30 seconds; I gave you a little bit more leeway.

[Dan McTeague]

Oh, you did? By all means, Chair.

[The Chair, Conservative, David Sweet]

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

We know Mr. McTeague well enough to know it's never just 30.

Mr. Huffaker, you spoke about the very broad impact of your member companies on the Canadian economy. One of the undercurrents—and you've probably caught it as you've been in the room today—of this conversation is the constant railing of the NDP against banks and oil companies. We never really actually hear very much focus from them on who the shareholders are.

Maybe you could just clarify something for me. One thing your member organizations--Talisman, CNRL, Suncor, Cenovus, Nexen, and all your organizations--have in common, interestingly, is that they're all in the top 25 holdings of the Canada Post pension plan, for example, the union pension plan for postal workers. In fact, Talisman holds $94 million worth of shares in that pension plan. CNRL holds $117 million. Suncor holds $154 million of Canadian postal workers' pension money. Cenovus hold $64 million, and Nexen holds $56 million.

For the Ontario pension plan, interestingly, Talisman holds $88 million; CNRL holds $84 million; Suncor holds $65 million; Cenovus holds $57 million. You see where I'm going with that. It's very significant.

By the way, the top three holdings in the Canada Post pension plan, the postal workers' pension plan, are actually banks, which are ahead of Suncor and CNRL.

Maybe you could speak to the impact across the country of your members, specifically maybe talking about some of these larger pension plans across the country.

[Tom Huffaker]

I would entirely agree. What you stated is accurate. Our members have huge holdings in pension funds across Canada, in mutual funds across Canada. Most Canadians, one way or another, probably have an interest in, and benefit from, the activity of the industry.

If I remember the number correctly, our members account for about a quarter of the value of the TSX. Obviously, it's a huge industry, as it represents, as we mentioned earlier, around 500,000 jobs, and those are certainly by no means exclusively in western Canada. Is there a concentration in western Canada? There is, absolutely. But on the manufacturing side, in central and eastern Canada, there are tens of thousands of jobs tied to the oil and gas industry.

I would just briefly comment on something a couple of other folks have mentioned, and that is the idea of the run-up to $147 and then the decline to $31. Yes, we would agree that was very hard on the industry. And it's not just the $31 that's hard. Actually, the $147 was extremely disruptive to things like oil sands development just because of the impact on input costs.

Now, I'm not here to talk about why the price moved in that way--we have experts to talk about that--but I will acknowledge that that kind of price was actually almost as challenging as the very low price.

I would just make one other comment. I don't think it's a matter of western Canada being in great shape and the rest of the country not benefiting from that. I think the rest of the country does benefit tremendously from good things happening in western Canada, but I also would note that the oil and gas industry right now is really two economies in Canada. The oil industry is in very good condition. The gas industry in Canada is really struggling.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Mr. McTeague, you were obviously a member of the House of Commons for a long time. You've been on the industry committee as it has studied this issue several times. I think the only time it actually came up with a recommendation was in 2003, when you were a vice-chair of the committee. Interestingly, it only came up with one recommendation at that time, and it had nothing to do with any of the stuff you've talked about today. It was a Liberal majority government, I think, at the time.

Why were you not able to convince your colleagues to put forward some of these recommendations?

[Dan McTeague]

That's a good question, Mr. Lake.

You'll realize that I was also parliamentary secretary to the Minister of Foreign Affairs, with the responsibility for Canadians abroad.

There have been a number of recommendations made over the years, most of them dealing with changes to the Competition Act. As I've indicated before, there has been a series of bills extending from the changes: on the dual track on price-fixing, on collusion and conspiracy, on changing the criminal provisions on predatory pricing, and on strategies of below-cost selling. Some of those have been implemented, ultimately, and in time, by your government, so I take some credit for the fact that did take place.

At the same time, you also have to recognize, Mr. Lake, that over the years there has been a phalanx of those who, because it's a law of general application, certainly didn't want to see a law designed for one industry applied to others. So for obvious reasons, in my time as a member of Parliament I have probably enriched more lobbyists in this country than has perhaps any member in history. But that being the case, the recognition is that the changes you ultimately made in 2009 were predicated very much on my initiatives—

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Somebody listened to you finally.

[Dan McTeague]

--save and accept, Mr. Lake--and you'll appreciate this--something that I was not successful in was the issue of changing the efficiencies defence loophole in the Competition Act. To put that in perspective, it deals with Superior Propane having been able to obtain a virtual monopoly of the propane industry.

[The Chair, Conservative, David Sweet]

Thank you, Mr. McTeague.

You're so good at this it's hard to find where you take a breath so I can actually—