Study accuses oil companies of gouging
Pump price spikes unjustified, economist says
National gasoline use tops 40-billion-litre mark
BRUCE CAMPION-SMITH
OTTAWA BUREAU
OTTAWA—Canadian oil companies have taken advantage of public fear of gas shortages and the devastating U.S. hurricanes to bring in unwarranted price hikes, gouging motorists to the tune of tens of millions of dollars in excess profit, a new study charges.
In a paper to be released today, economist Hugh Mackenzie argues the oil companies have pushed gasoline prices far above what can be justified by the current price of crude oil.
"What we've seen over the past month is nothing short of price gouging," he says in the study, to be officially released today by the Canadian Centre for Policy Alternatives.
In an interview, Mackenzie said his research reveals a clear need for government monitoring to make the industry "accountable for these kinds of spikes in prices.
"Clearly they can't do it themselves. The extent of the manipulation is really remarkable," Mackenzie said.
In his paper, Mackenzie argues a $1 (U.S.) increase in the price of a barrel of oil should mean a 0.8 cent-a-litre increase in gas prices, including the GST. That means the $10 (U.S.) increase in a barrel of oil from June to September should have meant a 7 to 9 cent-a-litre increase in prices at the pumps, Mackenzie argues.
As a result, he says drivers should be paying 95 cents a litre when they fill up, not the $1.02 a litre that was common yesterday at gas stations in the nation's capital and "certainly not" the spike to $1.30 a litre seen around Labour Day.
"The 15-cent increase we're now paying is profiteering. And the 40-cent increase we were paying over the Labour Day weekend was just plain gouging," he charges in his study.
To justify those pump prices, crude oil should have cost $100 (U.S.) a barrel, he said.
"There was a big blip upwards in the gas prices that you cannot in any way, shape or form explain with crude oil price changes," he said in an interview.
"It's pretty clear when you look at the numbers that the industry saw an opportunity to grab a big price increase temporarily because everyone was in a panic," said Mackenzie, who says he was motivated to look at gas prices after his first $60 fill-up in August.
"When we saw the first hurricane had caused problems with oil production in the Gulf, we saw prices go up by 30 cents a litre over a weekend. ... Clearly there's a grab there," Mackenzie said, referring to Hurricane Katrina, which slammed into the U.S. Gulf Coast on Aug. 29.
He said every penny-a-litre increase generates an additional $2.5 million for the industry each day. He said high prices experienced around Labour Day boosted profits by $112.5 million a day.
"Not a bad payoff from exploiting fear," said Mackenzie, a research associate at the Centre for Policy Alternatives, which bills itself as an independent, non-partisan research institute.
With motorists fuming every time they fill up, gas prices have dominated the political debate in Ottawa this week as opposition MPs pressure the government to give homeowners and drivers a break from high energy costs.
Yesterday, NDP Leader Jack Layton again called on Ottawa to implement an "energy pricing commission" to regulate gasoline prices.
"We think this whole question of the excess profits that have been made needs to be looked at," Layton said in an interview. "There's clearly profiteering going on. ... So far, the competition bureau doesn't seem to be the place you can turn. There's no regulatory framework in place. We're looking at other kinds of options."
Industry Minister David Emerson said yesterday the federal government is examining ways to track prices but was cool to charges that oil companies are "gouging" Canadians.
"We are looking at a mechanism to monitor prices in the oil sector. That is still under review," Emerson said.
Oil company executives testified on Parliament Hill last week, and repeated their argument that the market price for oil is out of the Canadian industry's hands. The surest way to ease the crunch, they said, is to lower gas taxes.
In the midst of all the controversy over pump prices comes news that, for the first time, Canadians' total gasoline consumption surpassed the 40-billion-litre mark last year.
According to preliminary figures, Statistics Canada says Canadians used an average of 111 million litres of gasoline every day in 2004 for everything from cars to tractors. Canadians bought just over 40.3 billion litres, including fuel used on farms, for construction or for other off-road uses. That was a 1.4 per cent increase from 2003, and up 16.7 per cent from 1994.
"Ontario drivers consumed the highest amount, 15.7 billion litres, or 39 per cent of the total, while those in Quebec purchased 8.4 billion litres, or 21 per cent. Drivers in Alberta accounted for nearly 13 per cent of total sales."
Consumption in Ontario last year was 22.9 per cent higher than a decade earlier. Statistics Canada says consumption rose in spite of soaring prices.
Meanwhile, Ottawa is considering a program that would help low-income families pay for retrofitting to cope with high heating costs, the Canadian Press reports.
The idea is that reducing energy consumption provides longer-term relief than just sending people rebates for heating costs. Environment Minister Stéphane Dion has been pushing to expand the existing EnerGuide for Houses program, an official told CP on condition of anonymity.
The EnerGuide program gives rebates to homeowners who upgrade insulation, replace furnaces or take other measures to improve the energy efficiency of their homes.
A finance department official said cabinet is working on measures to offset increased energy costs, but no final decisions have been made.
It has been reported cabinet is considering a package worth about $1.6 billion, but a source told CP that could include money already announced for the existing EnerGuide program.
With files from Canadian Press
