Oil Sands Truth: Shut Down the Tar Sands

Canadians need to "reel in" Big Oil: The Need for Law Reform

Canadians need to "reel in" Big Oil: The Need for Law Reform
by PatriotPete/bcpolitics.ca Peter Dimitrov, May 26, 2007

All across the country newspapers have reported that Canadian consumers are asking themselves these questions: are they been taken to the cleaners at the gas pumps? Are oil company profits too high, are taxes too high? These are great and overdue questions needing to be asked, but why the sudden lapse of confidence amongst the believers in the "free" market and neoliberal capitalist system is difficult to comprehend. After all, a sizable portion of the population do not believe that government should interfere with the operations of the market, and that fact is reflected in the repeated elections of both the federal Liberal and Conservative parties, both of whom are staunch advocates of "free" market capitalistic enterprise, and increased North American integration.

Well, let's look at the facts. There are four factors that influence the price per liter of gasoline at the pumps in Canada. About 40 to 50% of the price is the crude oil costs, that being the raw material for making gasoline or diesel fuel. Secondly, between 30 and 40% of the price at the pump is composed of federal, provincial, and municipal taxes, as well as the GST. Thirdly, there is a 10 to 15% margin made by the refineries. The margin is a difference between what it costs to buy crude oil and the price that refined gasoline or diesel would sell for in the wholesale market, a price which is partially influenced by supply and demand factors. Finally, the price at the pump includes a 4% to 5% profit margin by retailers, some of whom are independent operators, and some of whom lease gas stations from the major oil and gas players in the Canadian market.

Now let's analyze his previous paragraph. When it says that 40 %to 50% of the price at the pump is due to the crude oil costs under no circumstance ought you conclude that the crude oil costs are the same as the production costs incurred by the major companies. In fact the crude oil costs are not the production costs, rather, the crude oil cost is the wholesale price, the "posted commodity price per barrel of oil" set in places like New York, Seattle, Minneapolis. As we turn our attention to the matter of refineries and retail gas stations, it should not escape our attention that for the most part, the oil and gas business in Canada is a vertically integrated business, and the major players own the refineries as well as the retail outlets. So they're making profits all along that vertical pathway.

Just just who are the major players in Canada, that is Big Oil? In no particular order as to the size of their business operations they are:

Chevron Canada, Husky Energy, Imperial Oil, North Atlantic Refining, Petro Canada, Shell Canada, Suncor Energy and Ultramar. It is common knowledge that Imperial oil is owned by Exxon Mobile, and that Shell Canada has been, or is soon to be taken over by Royal Dutch Shell.

Let's consider Big Oil's profits. As a starter when you're lining up at the fuel pump, reaching for your wallet or purse to pay that hefty bill, you might want to know that the combined 2005 profits for the big three oil companies with more than $63 billion. Furthermore the three major oil companies, Exxon Mobile, Chevron, and Conoco Phillips made $15.7 billion US during the first three months of 2006, and that is about 17% more for the same period in 2005.
Just as you fork over more of your money to Big Oil, let's take a collective pause and be even more mindful.

Petro Canada- Canada's fourth-largest producer and refiner reported earnings rose from 486 million during last year's first quarter to 580 million during the first quarter of 2007 - that is an increase of 94 million or 19.34%. Did you get a wager salary increase of 19.34% during the first quarter of 2007, likely not, that's part of the built-in inequity of the capitalistic system.

Imperial Oil- first-quarter profits up 31% to $774 million. It is noteworthy that Imperial oil is 69% own by Exxon Mobile.

Chevron -their profit in 2006 was $14.1 billion, a company record. During the first quarter of 2007 their profits are up 18% over 2006 to $4.7 billion US. Last year, 2006 first-quarter was pretty good too, then profits soared 49% to $4 billion US.

Royal Dutch Shell, the owners of Shell Canada, their profits in 2006 were $25.44 billion.

Husky energy's first-quarter profits in 2007 are up 24%.

Now let's consider the potential profits made from the production of oil from the oilsands in Alberta. In case you didn't know there are three players in the oil sands project, Shell Canada/Royal Dutch Shell, Western Oil Sands, and Chevron.

According to the OilSands Discovery Center in Alberta, it costs approximately $13.21 per barrel to process each of the 2.8 trillion barrels in the oilsands... a reserve eight times bigger than Saudi Arabia's... containing more oil than all OPEC nations combined. So if the OilSands Discovery Center's figures are correct, and it only cost $13.21 per barrel, and the world price for crude sells for $60 US plus - that is a $46.79US, more than 350% profit above the cost of production. Who pays for that profit margin- we, the Canadian consumer.

But then the quest for even more profits isn't over, as they go on to take an additional 10% to 15% refiners margin, refineries all owned by Big Oil, and further profits from leases of their retail gas stations.

But to be fair, we ought to discuss the topic of taxes. 30% to 40% of the price at the pump is composed of taxes. The federal government charges $.10 per liter excise tax on gasoline and four cents per liter on diesel. Then there is a federal GST up 6%, and where provincial sales taxes exists there is an additional tax levy of 6% or 7%. If you live in the city of Vancouver or Victoria there is a municipal tax of six cents per liter, while in Montréal it is 2.5 cents per liter. On the average, looking across British Columbia, the tax proportion per liter gasoline for the week ending May 15, 2007 was 31.3 cents per liter, except in Vancouver where it was 37.7 cents per liter, and Victoria where it was 34.1 cent per liter.

Despite the public reporting of the profit levels of Big Oil I personally don't believe they're accurate - I think they are way under-reported, not even touching the issue of excessive rates of executive compensation and management consultation fees with parent companies, or deferred taxation, write-offs, subsidies, corporate welfare.

There's no public transparency respecting their real costs of producing crude oil or operating the refineries, and consequently, the citizens of this country have little idea of the profit margins of Big Oil over and above their costs of production. It is a misconception to think that the profits of Big Oil are only due to the markups along that vertically integrated pathway, in part they're also a consequence of the volume of petroleum products sold, it is a consequence of their monopoly and vertical integration.

I for one would like to see a federal Petroleum Products Utilities Commission established in Canada, where Big Oil would have to "show and tell" costs associated with production, reveal their profit margins along each step of their vertically integrated industry, and justify why the price at the pump ought to go up -especially in an era where government taxation rates are stable, and, where world prices are currently falling. As a consumer I am willing to concede the need of a reasonable annual profit margin but only in an era where there is price stablization at the pump established by a federal Petrolem Products Utilities Commission...similar to the BC Utilities Commission that regulates hydroelectric and natural gas increases in prices for BC consumers.

Someone has got to hold them accountable, someone has to demand greater transparency of their accounting records, someone has to say enough, someone has to regulate and reel in that sector - we do it in other areas of the economy -why not the Petroleum sector? Why not -can anyone ought there in cyberland pose a rational reply to that reasonable question.

In my view that someone to make those demands for governmetal regulatory intervention has got to be you-the collective voice of Canadian citizens demanding accountability and leadership.

If we as Canadians seek to establish a more just and equitable society where the gaps between the rich and the poor are lessened, where there is greater equality between the provinces, where our collective carbon footprint is substantially lower, then it is imperative that we reconsider whether or not oil and gas resources ought to be owned by the Provinces or by the Federal government for the equal benefit of all Canadians. We need to consider imposing transparent regulatory pricing mechanisms in the Petroleum sector, we need to have a national debate so as to democratically create a National "green" and Kyoto compliant Energy Policy - a Policy that balances Big Oil and their large carbon footprint with the imperative to consider the issues of global warming, our carbon emissions and Kyoto.

Surely this nation and future generations of Canadians deserve a Kyoto compliant (or better) national energy policy, surely we deserve national energy security - no less so then Mexicans and Americans currently do- but if continentalist market forces continue to prevail over Canada's national public interest it is certain that too high a proportion of Canada's energy reserves will be exploited not for the obstensible benefit of Canadian citizens and the preservation of our national and global Commons - but rather for the obstensible benefit of the corporate sector and the insatiable energy demands of the North American economy - an economy that is highly wasteful in terms of energy useage, an economy where the focus is much more on "guns" and not "butter", an economy for "greeds" and not "needs." There are choices Canadian need to make now.

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