Thanks For Nothing

Just finished watching the CBC's special on rising gas and oil prices, and what it means for consumers. While it wasn't the most useless piece of journalism I've seen on oil/energy/gas issues, it sure came close. No mention of that fact that natural gas has peaked in North America, and nary a mention - even in passing - of Peak Oil.

The CBC did spend some time talking about the widespread effects oil prices have - paying attention to plastic prices (up 30%), for example. But all in all, I'd get more information in 30 seconds on the Internet.

Which brings me back to the question of gas prices. Before I go on, I'd like to reiterate that I don't at all want to be seen as defending the oil companies. Exxon = evil. Let's be clear. But I do think that there are alternative hypotheses to "greedy oil companies" that should be eliminated before we warm up some jail cells for oil executives. More broadly, we should ask whether the oil industry is doing anything that it hasn't done previously. That was the point of my previous posts - it's possible the gasoline industry is doing what it's always done, it's just that the magnitude is so much larger than in years past, because of structural (supply and refinery) constraints.

On that note, Mike responds to my previous comments:

What the slate article says an what you state seem to be true for places like Suny's and McEwan's and other "independants". But it falls apart when you consider that most gas stations are actually owned by the oil companies themselves.

There is no real competition, since the franchisee must purchase oil from their company and NOT on a free and fair market. This oligopoly behaviour means that when one oil company raises its price for oil and gas, it happens at all of its gas stations nearly simultaneously. Other oil company stations quickly follow suit. When most gas stations are in fact owned by the oil companies then, you position about the local owners carries a lot less wieght.

In other words, the oil comapny is making money at both ends - on the oil and again on the gas. Which means that there is still room for collusion and gouging.

This is a valid point - the gasoline market isn't competitive in that sense. But the large companies still compete against each other, and the margins for gasoline have (until recently) been so small that the only way for gasoline retailers to increase profits realistically has been to increase their customers - presumably by cutting prices. Obviously, this is a hypothesis. There's plenty of historical evidence for collusion between the oil majors. Again, you should all read Linda McQuaig's It's The Crude, Dude.

I guess my real question is this: Is the oil industry doing anything new? That is, are high prices the result of some new change in their policies, prices, etc? Or is it simply that the oil companies are doing what they've always done, or been allowed to do - only that oil is now at $60?

As for the piece at the CCPA that Mike mentions it, I'm not terribly impressed. A sample:

Of course, when we’re asked to accept high crude oil prices as a given, we’re supposed to ignore the fact that the gas we’re pumping into our tanks doesn’t cost one cent more to produce today than it did five years ago, when the pump price was less than 60 cents per litre — a fact that provides the oil industry with a windfall of $1.7 million every day for every dollar the price of crude goes up....

What should the price be? What would it be if we weren’t being gouged by the oil industry? Let’s figure it out. Crude oil at $68 (U.S.) a barrel translates to 50 cents per litre (Cdn) at the pump. Normal refining and marketing margins add 14 cents per litre. Provincial taxes (Ontario) add 14.7 cents. The federal gasoline tax adds 10 cents per litre, for a total of 88.7 cents per litre. Add 6.3 cents for the GST, and that gives us 95 cents — which is what we should be paying.

It's late, so I don't have the energy to check Mackenzie's sources. He does make a good case for the "gouging" charge. It wouldn't be the first time I've been wrong in print. But I do have a number of problems with his analysis: First off, he really does ignore the fact that half of North America's refineries are shut down. This is a huge deal - we're being loaned gasoline from Europe's strategic reserves at the moment. (The EU, being more sensible than us, keeps strategic reserves of finished petroleum products as well as oil.) To expect normal behaviour from the industry at a time when it's facing the worst damage in it's history is unreasonable.

Oh, and one unpardonable sin in my book - Mackenzie is wrong about where gasoline prices were in the summer of 2000. Take a look here for prices in Ontario:

Apr 5 66.3
Apr 12 62.8
Apr 19 64.5
Apr 26 66.4
May 3 66.6
May 10 70.0
May 17 72.1
May 24 67.6
May 31 69.9
Jun 7 68.5
Jun 14 75.6
Jun 21 69.2
Jun 28 76.8
Jul 4 69.7
Jul 10 67.5
Jul 17 68.8
Jul 24 70.0
Jul 31 65.3
Aug 8 67.7
Aug 14 65.0
Aug 21 69.7
Aug 28 70.7
Sep 5 70.4
Sep 11 74.1
Sep 18 69.4
Sep 25 74.8

So nowhere during the summer of 2000 were we paying less than 60 cents at the pump. The closest we came was the week of April 12, which is still early and not really part of the summer driving season. The more reasonable point of comparison would be the last two weeks of August, where we were paying 70 cents. The price of oil was $35 Canadian per barrel. Even before Katrina, we were paying more than $70 Canadian for oil. So the price of oil doubled in the intervening years, but gasoline actually didn't double - aside from the immediate post-Katrina spike, nobody paid $1.40

I don't think the picture is as clear as Mackenzie argues it is.

None of the above, or anything I write for that matter, should be read as "defending" the oil industry in any sense of the word. I would very much like to see a Parliamentary investigation in to this matter. What I think would be disastrous is if some of the more intemperate and idiotic ideas coming from the NDP caucus were followed. China and India have tried to control gas prices, and all they've got for their trouble is massive shortages. Then we have the example of Indonesia, where the government could no longer afford to subsidize fuel, and got the inevitable result: massive rioting.

The only solution to high gas prices is a serious, long-term plan to reduce consumption. Free mass transit is the simplest and fastest thing we could do. Aside from that, working on improving the efficiency of ethanol production (a Canadian company, Iogen, is actually a world leader in this field) and not getting in the way of the market when it's working (like NOT imposing a tariff on bicycles, duh) while keeping an eye on the market when it's possibly not working is the best policy.