CalgaryGrit: Random Question

Tuesday, May 15, 2007

Random Question

Given that the best way to reduce greenhouse gas emissions and meet Kyoto targets would be through higher gas prices, should the Liberals and NDP really be calling for the government to intervene and lower gas prices?

Just a random thought, since no news headlines are really grabbing my eye today.

Labels: Gas prices

63 Comments:

God I was hoping this question would come up....

Given that Canadians are *soooo* *darned* *concerned* about the environment, you'd think they'd be jumping for joy at the prospect of leaving their SUV in the car-haul and taking the bus to work.... you'd think, wouldn't you?

Raise the prices to $3.00 a gallon... that's what I say! If we're so damned concerned about the environment, we should drag those *concerned* voters out there kicking and screaming into riding bikes, walking, riding a horse, taking a bus or tram... whatever is necessary! The Libs and NDP should be leading the charge on this, in my view.

By Sean Cummings, at 11:38 a.m.
Scratch that... $3.00/litre.... damned 'Mericans screwin with my metric vibe!

By Sean Cummings, at 11:39 a.m.
There is a huge separation between classes in this country, and this is quite apparent in Alberta today. Thanks to our current finite economic boom and the increasing cost of living, we're making that divide even more noticeable. If the cost of fuel is increased by the federal government, we would certainly experience backlash from the great number of people who cannot afford it. The number of vehicles on the road would definitely decrease, causing a lot of employees across the country to be unable to get to work and, subsequently, having to take jobs closer to home. At the same time, the rich would still be able to afford to fuel up their inefficient and environmentally unfriendly beasts. I think that the roots of this problem grow in a much different direction than merely the cost of fuel; we have to take a more rational look at what we're fuelling up in the first place, and consider severe federal restrictions to those vehicles.

By Michael Lagace, at 11:49 a.m.
Mickie's point is a good one, that a lot of the answers to this puzzle begin in legislation that starts at the manufacturers and the planners. Municipalities and cities which allow for massive spread, including up mountainsides where public transit is either too expansive or too difficult, have to begin thinking about density-plus. Encouraging development of older communities, encouraged builders to put up more rental units in central locales. Make car manufacturers build to stringent fuel standards. Invite car manufacturers to locate in CAnada with R&D money to produce other alternate fuel-operated vehicles.
However, your question about whether the Libs and NdP should shut up about regulating gas prices is an apples and oranges issue. They are talking about what appears to be a greedy monopoly that does not actually reflect the market of fuel, when you chart it as a resource. It may be ballot-box issue that hits at the CONs secret fund base, but it also strikes a cord because no one can figure out how, when the price of a barrel of oil seems stagnant or going down, the price of gas continually jumps (at every station), floats there for a few days, then dips almost predictably a few cents.

By burlivespipe, at 12:01 p.m.
If cities could deliver KICK ASS mass transit for a few extra pennies per litre... as someone who currently drives everywhere I would be all for that.

Drivers conveniently forget that EVERYONE benefits from better mass transit... less air pollution AND less traffic congestion.

By MERBOY, at 12:03 p.m.
Given that the best way to reduce greenhouse gas emissions and meet Kyoto targets would be through higher gas prices, should the Liberals and NDP really be calling for the government to intervene and lower gas prices?

Don't forget we're talking about politicians here!

It's my guess that most people tell pollsters they care about the environment, but really don't want to do anything that will change their lifestyle.

To solve the problem of high gas prices, the government must repeal all gas excise taxes.

Mickie - Class seperation is a good thing - we need more of it. Personally, I don't want to associate with the lower classes who I have nothing in common with.

By Unknown, at 12:11 p.m.
I agree, it is a bit odd. However, if people are being gouged, than it should be stopped.

If true costs are to be put into it, there shouldn't be artifical gouging. With the true costs it would be much higher, around $3.30 a litre when all the environmental, health, and geo-political costs are added in.

By bza, at 12:23 p.m.
No.

I would personally like to see gas hit 2.00 a litre over the summer. It's time to really see if Canadians just talk the talk when it comes to the environment as this new poll indicates.

"Save the planet, but not on my dime"

http://www.canada.com/nationalpost/news/story.html?id=f910cc88-4e26-40b5-a4db-30828a0011a3&k=51692&p=2

By In_The_Centre, at 12:55 p.m.
"Drivers conveniently forget that EVERYONE benefits from better mass transit... less air pollution AND less traffic congestion."

I'd suggest that you might want to rethink that statement. I know Liberals have few seats outside Toronto and Montreal, and a smattering in Vancouver, but it would behoove you guys to remember the vastness of our country and that millions of people do not live in areas with transit. It's kinda like your "universal" daycare which was only universal for people who lived in a large, urban area.

By The Rat, at 1:22 p.m.
Yeah, ideally, if there was gouging, you'd stop that and replace it with a gas tax.

By calgarygrit, at 1:40 p.m.
Anger over high gas prices simply exposes the shallowness of the public's commitment to environmental issues. In poll after poll they claim they care, but not if it hits them in the wallet. And this is a serious political challenge for every party to somehow get around if the environment is going to be taken seriously.

By ALW, at 1:56 p.m.
The GW "hypocrits" want cheaper gas???
Like they should be cheering the inflated prices . . . shouldn't they??
Get those poor folks off the road . . . . let them eat cake instead.
Make more room on the freeways for the Escalades, Lexuses, BMWs.
Everything you buy rides in a truck or two . . . . soon we will have $6 a gallon milk, $4 a head lettuce and so on.
Ten years from now . . . . when we are looking back and remembering the GW non-event, we can have the same laughs we have today over the 1976 Ice Age threat!!!

By Oldschool, at 1:58 p.m.
Why don't we encourage companies to drop prices to 10 cents a litre and exhaust all the supply in the next couple of years then we would be forced to change. If the supply is finite and we are going to expend it anyway, why not speed up the process and the search for alternatives.

Realistically, we are receiving a subsidized price by comparison to world markets, governments are raking in tax dollars and corporations and shareholders seeing obscene profits - what incentive is there to change?

By Bob McInnis, at 2:36 p.m.
It is hardly like the oil companies are inspired by the environment when they raise their prices, so I am not sure why the consumers should be when they complain.

My husband smokes. He always said that he would quite smoking when he had to pay a dollar a cigarette. Now that the price of cigarettes are getting up there, he no longer holds true to his promise.

The fact is, people will want to drive their cars, and they will pay for the gas. If this were not so, the oil companies would not still have a market for their product. The way to address this issue is not with raising gas prices, which, as mickie correctly points out, simply results in economic discrimination. The solution is better public transit, and more fuel efficient vehicles. It is also in an attitudinal shift by the public (car pool if public transit is unavailable, stop buying the gas guzzling SUV's etc).

People are selfish and unwilling to make sacrifices, but we are going to have to do just that if we want to preserve this planet. It takes time to make the shift.

I just think concentrating on gas prices misses the point.

In other words, what burle said (much more artuculately than I).

By Gayle, at 2:42 p.m.
yes the government should be doing something about it... until the people have alternatives to gas the issue of gas prices and the environment are not related.

As mentioned... people in rural communities don't have a choice but to buy gas.. there is no public transit and many use their trucks for business purposes. You try taking your lobster traps to the wharf on your bicycle...

As also mentioned... the price of goods will rise because of the shipping costs.

Raising the price isn't creating more environmentalists.. it's creating more poor people. The problem needs to be dealt with (by stopping the gouging and providing alternatives).

Face it.. we're dependent on gas and at this rate that isn't going to change relatively quickly so we have to stop these people from taking advantage of us.

By Robert_S, at 2:47 p.m.
Yes!

This is exactly the paradox that gives socialists a failing grade on the environment.

Rich people can afford high gas, heat and energy prices. They can afford hybrid or more fuel-efficient-designed cars. They can afford efficient light bulbs, windows and insulation. Indeed, they often get RICHER on these things because they have money to invest in the companies that make them. Rich people can afford the diminished public services as government money is re-directed from social programs into environmental causes.

Poor people can not.

A true socialist party should be AGAINST most environmental reforms.

By Robert Vollman, at 3:06 p.m.
Just wondering, who do these posters think rich people are. Seems like they think anyone with a job is rich.
When you can show me a hybrid car, van or truck, with a lift that will take a wheelchair, maybe my huge van will get off the road. When you can show me a hybrid that will take 4 people comfortably, with luggage, or groceries, or sports equipment, maybe the other suv will go. Cars that only carry two people, uncomforably, will put more cars on the road to get family to where they need to go.
We don't even have greyhound service anymore, and several towns have no gas stations, (due to petrocan forcing them out of business years ago) so must travel over 40 miles one way to a station. Farmers live 60 miles from a station, so have their own fuel tanks, but mass transit is not an option. Too bad those in TO and ndp havens don't get out and see the real Canada. Kyoto is a scam, big time, to put more money into the pockets of the biggest scammer of all time, MO STRONG.

By maryT, at 3:30 p.m.
Good comment. They can't have it both ways. The Grits and NDP should be rooting for high gas prices if they really are the environmental parties.

Maybe they're just pissed because they can't tax gasoline higher and get the extra money the oil companies are extracting from motorists' hides.

By Unknown, at 4:41 p.m.
There is no gas price gouging. There is a shortage of refining capacity in North America. Refineries require maintenance, and they occassionally break down, there is not sufficient capacity to meet peak demand.

When the oil prices were collapsing in the late eighties and nineties, and governments were imposing costly environmental controls on refineries, and expensive modifications to produce cleanly burning fuel, refining was a miserable business.

And because it was a miserable business, and because of nimbyism, nobody built new refineries.

Now, any breakdown, or maintenance (which is taking longer because of a shortage of qualified labour and replacement parts because of the oilsands and the Asian economic boom) can "break" the supply demand balance.

North American gasoline is traded freely daily on the NYMEX. If you truly believe there is gouging going on, one can take the opposite trade in the futures market on the NYMEX and make enough money to retire in a couple of weeks.

The United States has to import over a million barrels a day of refined gasoline in the summer time as it is.

Are the refineries currently making large profits? Yes, but it is only because prices must rise to keep supply and demand in balance. But unless the refinery industry becomes profitable, no one will build new refineries.

Prices rise to slow demand, or the gas pumps will quickly run dry. It is price rationing, which is probably preferable to voucher rationing.

By whyshouldIsellyourwheat, at 5:05 p.m.
CG said

“Given that the best way to reduce greenhouse gas emissions and meet Kyoto targets would be through higher gas prices”

We really need to look at the details. Canada is a large oil exporter. Therefore, importing countries like America are getting ‘cheap’ gas because Canadians pay the price for pollution.

Taxing consumers is not the only way to reduce emissions. Policy options include

a) The oil patch must be legislated to be more efficient
b) It is a policy choice to cap emissions with/without carbon trading
c) It is possible to impose a windfall tax on the oil patch and the funds distributed to needy Canadians.

I’m not going into the details partly because of the complications caused by NAFTA. Suffice to say that NAFTA is a great deal for America.

The bottom line for consumers is the question, ”Will higher production costs result in higher pump prices?” The answer is no in the short term because the Canadian oil industry are price takers. They are unable to pass on the additional costs because the oil price is set globally. They have to keep producing as long as the oil price is substantially higher than the margin costs.

It is possible to cut emissions substantially without sending Canada into an immediate recession. Don’t listen to lying whores like harper and baird.

By JimTan, at 5:19 p.m.
CG said

“should the Liberals and NDP really be calling for the government to intervene and lower gas prices?”

Gas prices are higher because there is an actual shortage of gasoline in North America. This is caused by temporary refinery glitches. It is not possible to legislate lower prices ex-refinery (prices charged by the refinery). Much of the gas comes from refineries in the States.

However, it is possible to lower pump prices in Canada by reducing sales taxes. We could tax the oil companies’ windfall profit and pass them back to the consumer. Why allow the oil companies to make a higher profit margin from shortages caused by their errors?

IMO, the government must intervene because the refinery industry is an oligopoly, and there are substantial barriers to entry. We are at the emrcy of the oil companies. Oil prices are rising in the long term. Why impose additional costs on the consumer in the short term?

It would be political cowardice to not confront the oil industry. They should make profits, but they have to pay for their mistakes.

By JimTan, at 5:20 p.m.
Call me a naive optimist waiting to be disappointed by the generationally-bred apathetic nature of mankind, but I still believe that if presented with a reasonable ecological alternative, all Canadians would choose it. The fact as it stands is that consumers are not given enough practical alternatives, which extends far beyond simply fuel efficient vehicles. The general consensus that I'm reading here, as well as from nearly every form of media, is that we all want less dependency on oil, more governmental influence over companies to be environmentally conscious, but we don't want to compromise any part of our poshlust lifestyle. The simple reality is that we cannot have all this luxury and expect it to last forever. Our mentality, habits, and diets need to change before any significant progress can be made.

It's funny how a litre of gas costs less than a litre of bottled water, though. Ha. Ha. Ha.

By Michael Lagace, at 5:22 p.m.
Wheat said

“But unless the refinery industry becomes profitable, no one will build new refineries.”

Not so! The Canadian government could buy/build the refineries and run it as a government corporation. The government could afford a lower profit margin because its cost of capital is lower.

There is also the strategic argument. For example, the American government has a hefty investment in stockpiled oil reserves.

Finally, there is no excuse for the oil companies to under-invest in refinery maintenance or capacity. Their refined products are being sold in their gas stations. There is profit there. Refineries should be seen as a necessary part of the cost of doing business.

By JimTan, at 5:55 p.m.
"Finally, there is no excuse for the oil companies to under-invest in refinery maintenance or capacity. Their refined products are being sold in their gas stations. There is profit there. Refineries should be seen as a necessary part of the cost of doing business."

Unless there is something else at play here? In an 'open market', would oil companies build new refineries that would take x years of utilization to cover off the construction costs if they knew the product they refined there was going to be coming in less amounts in the future permanently? Probably not. I can't understand how it could be explained any other way. Yes, they've expanded production of existing refineries over the past 20 year, but there have hardly been any new ones built? Why?

By MB, at 7:27 p.m.
I guess the thing I don't entirely understand is that if the gasoline sitting in the underground tank at your local gas station was bought for the price *whatever the hell it was* the last time it was filled from it's supplier, why then does the price go up *before* the underground tank at the local gas station is filled up with gas at today's price?

Just wondering about that... either way, the reality is that high prices are here to stay and it will inevitably lead to higher inflation (I do remember the 1970's quite vividly BTW) and like it or not, high gas prices can and will become an election issue... just as Bernard Lord.

By Sean Cummings, at 7:33 p.m.
jimtan wrote:
//Not so! The Canadian government could buy/build the refineries and run it as a government corporation. The government could afford a lower profit margin because its cost of capital is lower.//

Most oil companies (E&P's, explorations and production companies) are content to stay entirely out of the upstream refining business. Only a small fraction of oil companies are involved in refining, because governments made refining an extremely unprofitable business.

During the eighties and nineties, essentially no profits were made in North American refining. In the last three years, refining has finally become a profitable business again, because of the shortage of refining capacity.

During the eighties and nineties, governments imposed huge costs on refineries, forcing them to be cleaner and to produce cleaner fuels, while allowing the auto industry to rake in windfall profits on building more fuel inefficient vehciles.
And governments and communities made it next to impossible to build new refineries.

But then, we wouldn't need more refining capacity and we wouldn't have runaway gas prices if the government had imposed tougher fuel efficiency standards.

Bad government, nimbyism, and the automobile industry are responsible for the runaway gas prices.

jimtan wrote:
//Finally, there is no excuse for the oil companies to under-invest in refinery maintenance or capacity. Their refined products are being sold in their gas stations. There is profit there. Refineries should be seen as a necessary part of the cost of doing business.//

The integrated oil companies didn't underinvest. Governments made them invest massive amounts of money with everychanging environmental and fuel requirements (while letting the automobile producing increasingly worse gas guzzlers). Hardly a cent was made in the refining aspect of the oil industry in the eighties and nineties. It is why the refinery business in North America is pretty much an oligopoly.

The United States imports over half a million barrels of gasoline a day in the winter, and over a million barrels a day during the summer. Like the automobile industry which is integrated across the border, so is the oil industry.

The gasoline price is basically determined by supply and demand in the NYMEX futures market.

If an gasoline retailer sets his price to low, his pumps will quickly run out of gas. Imperial ran out of gas at its pumps when it had its refinery problems last winter because it refused to "gouge".

Everytime politicians whine about gas prices, the less inclined anyone is to build another refinery. It is why most oil and natural gas companies stay as far away as possible from the upstream refining business.

Anybody who honestly believes there is gouging should be able to trade their way to a fortune trading gasoline futures on the NYMEX in short order. It is also why most refineries to service the US market are being built offshore the US to avoid the complete stupidity and ignorance of American politicians, and the increasing stupidity and ignorance of Canadian politicians in relation to all things energy.

Disclosure: I work in telecommunications.

By whyshouldIsellyourwheat, at 7:58 p.m.
whyshouldIsellyourwheat said...

There is no gas price gouging.

What?!? They're making record profits. If it wasn't obvious already...

Canadians being gouged at gasoline pumps, report says

By Robert_S, at 8:17 p.m.
//What?!? They're making record profits. If it wasn't obvious already...
Canadians being gouged at gasoline pumps, report says.//

That Polciy Alternatives report is a joke. It is so poorly researched it is laughable. It never once mentions the gasoline crack spread. You can't talk about gasoline prices without discussing the gasoline crack spread, and what is has been historically.

Anybody who truly believes there is gouging can make a fortune trading gasoline futures on the NYMEX in a couple of weeks.

There is no gouging.

By whyshouldIsellyourwheat, at 8:34 p.m.
rd said

“Yes, they've expanded production of existing refineries over the past 20 year, but there have hardly been any new ones built? Why?”

No doubt because of the resistance to oil refineries in our backyard. Quite rightly so when you consider the track record.

In 2005 and 2006, BP had problems in their Texas and Ohio plants. People died. In 2006, BP’s pipeline in Alaska had a leak. Maintenance not done, and penny pinching. You can’t depend on the management of private companies that are under pressure to continuously produce profits. And, this is during a time of record profits.

“Documents released in September 2006 by the U.S. House Energy and Commerce Committee revealed the position of senior corrosion engineer for BP's Alaska operations had been left vacant for 15 months. The position was vacant in the months leading up to the March spill and remains unfilled at press time six months later.”

This is an indictment of private enterprise, not ‘meddling’ politicians or ‘troublesome’ activists. Once again, another reason for the government to step in and do it to the satisfaction of the greens and the local community.

Wheat said,

“Anybody who honestly believes there is gouging should be able to trade their way to a fortune trading gasoline futures on the NYMEX in short order.”

Disclosure: I use to be a financial futures trader. Through a process called euphemistically ‘price discovery’, we would push the price up and down. During a shortage, the price goes up to the delight of producers who try to cash in as much as possible.

BTW, you still have not addressed the issue I raised about private vs. public, efficiency vs. externality tradeoff. And, are you in telecommunications or public relations?

By JimTan, at 8:40 p.m.
Anybody who truly believes there is gouging can make a fortune trading gasoline futures on the NYMEX in a couple of weeks.

What makes you believe some aren't already?

By The Anonymous Green, at 8:41 p.m.
I’m not going into the details partly because of the complications caused by NAFTA. Suffice to say that NAFTA is a great deal for America.

IMO, the government must intervene because the refinery industry is an oligopoly, and there are substantial barriers to entry.

Once again, another reason for the government to step in and do it to the satisfaction of the greens and the local community.

Sounds like views Jack Layton or David Orchard would hold.

Pretty left wing.

By The Anonymous Green, at 8:46 p.m.
//BTW, you still have not addressed the issue I raised about private vs. public, efficiency vs. externality tradeoff. And, are you in telecommunications or public relations?//

If the politicians get nutty enough on the issue of gasoline prices, the integrated oil companies will probably be willing to sell their refineries to the government. People and politicians are clueless enough about refining, that I can see it becoming essentially becoming likely a highly regulated public utility. Gasoline prices will then be significantly higher but less volatile.

For the last two decades, governments were imposing costly environmental mandates on the refining industry (nothing wrong with that) while allowing the automobile industry windfall profits on gas-guzzling monstrosities, and alway the fuel efficiency of the private vehicle fleet to drastically decline (plenty wrong with that). That is why there is going to be a continual gasoline crisis, and well an automobile industry crisis.

Bill Clinton, Al Gore, Jean Chretien and Paul Martin refused to do anything about North American automobile fuel efficiency standards during the nineties. As the automobile industry in Ontario dies, remember who to blame. Remember who didn't plan for the future. Kyoto wasn't important enough for Clinton or Gore to spend their political capital on when they had the power to do something. Chretien and Martin did nothing on Kyoto.

Aside:
But then Hubbert's peak oil in worldwide conventional oil production is a-coming...

Disclosure: Telecom R&D, Ph.D Physics. B.Sc. Physics, B.Sc Computer Science.

By whyshouldIsellyourwheat, at 9:32 p.m.
wheat said

“People and politicians are clueless enough about refining, that I can see it becoming essentially becoming likely a highly regulated public utility. Gasoline prices will then be significantly higher but less volatile.”

Very often, the North American experience has been negative for consumers. Attempts to privatize Hydro One (in Ontario) has resulted in much higher prices for power.

In California, deregulation had been a disaster. From wikipeida,

“The California electricity crisis (also known as the Western Energy Crisis) of 2000 and 2001 resulted from the gaming of a partially deregulated California energy system by energy companies such as Enron and Reliant Energy. The energy crisis was characterized by a combination of extremely high prices and rolling blackouts.”

On the other hand, the deregulation of the telecoms industry has been positive because leading edge technology has exploded the value proposition for consumers. Intense competition has been good. See the difference?

In BC, the provincial car insurance company (Insurance Corporation of British Columbia) charges much lower rates than private insurers in other provinces. Part of the reason has been the ability of ICBC to limit compensation for injuries to $1 million.

On the other hand, the right-wing government in BC is trying to hand over public assets to private owners in sweetheart deals. Prices may not go up, but the public has lost out.

Don’t be dogmatic. Check out the strategy and the details. Crown corporations can do a competent job in mature industries. Beware of the cronyism of right-wing governments. The biggest risk lies in privatizing and deregulating at the same time.

By the same token, de-privatization may make sense where private industry can’t meet strategic or societal considerations.

Wheat said

“while allowing the automobile industry windfall profits on gas-guzzling monstrosities”

Hmmm! It’s difficult to make a windfall profit in very competitive industries.

By JimTan, at 12:33 a.m.
"Hmmm! It’s difficult to make a windfall profit in very competitive industries"-JimTam
If there is a shortage of supply, everyone can make windfall profits in a very competitive industry.

The skilled trades is a good example, 1000s of independent contractors have been able to push up the price for their services due to a shortage of workers.

Ever heard of the Nash Equilibrium? It isn't collusion, it is economics.

By Concerned Albertan, at 1:14 a.m.
jimtan: "The position was vacant in the months leading up to the March spill and remains unfilled at press time six months later.”

The position is in Alaska. It is a position that exists in warmer climates.

There are MANY positions that remain open for 12 or more months, depending on SUPPLY.

Give your head a shake. Either that, or train for the job and move to Alaska, if it bothers you that much. It may well be open by the time you finish your degree/training and had enough experience to be a 'senior corrosion engineer.'

By Candace, at 2:29 a.m.
My position is thus:
I am skeptical that governments could efficiently run a refinery business. I don't see that running refineries is really something that a government should be doing. I am a "classical liberal", where that term should be interpreted in the postmodern sense.
Classical liberalism is not espoused by any of the existing political parties.

jimtan wrote:
/Attempts to privatize Hydro One (in Ontario) has resulted in much higher prices for power.//

Ontario has over $100 billion dollars in stranded Hydro debt because parties of all political stripes have screwed up the various incarnations of Ontario Hydro and underpriced electricity for over 40 years. Plus, Ontario is dependent on the US for electricity on the hottest days of summer, and the coldest days of winter.

//In BC, the provincial car insurance company (Insurance Corporation of British Columbia) charges much lower rates than private insurers in other provinces. Part of the reason has been the ability of ICBC to limit compensation for injuries to $1 million.//

Governments view the "right" of bad drivers to drive higher than the individual right to security of the person (the right to fair compensation for injuries). Governments of all stripes and pretty much the public choose to undermine the charter of rights for the sake of bad drivers.

//By the same token, de-privatization may make sense where private industry can’t meet strategic or societal considerations.//

Quebec and Atlantic Canada still rely on foreign oil. Ontario relies on American electricity to keep the air-conditioning running in summer, and the heat on in winter. Because of federal government incompetence, and Ontario and Quebec government incompetence (again all stripes), an energy superpower, Canada, would face a huge crisis if the Straits of Hormuz were closed.

By whyshouldIsellyourwheat, at 8:21 a.m.
"What?!? They're making record profits."

When it costs billions to find it, drill for it, and bring it to market, it's not called profits. They're called "reclamation of capital."

And even still, the profits are pretty tame compared to some other industries.

By Robert Vollman, at 10:27 a.m.
Volkman said

“When it costs billions to find it, drill for it, and bring it to market, it's not called profits. They're called "reclamation of capital."

Hmmm! Yes, companies do need to recover overheads incurred during exploration and infrastructure building. However, costs for conventional oil is quite low because of the state of current technology. Production is profitable at under $30 barrel.

“Until the March 28, 2000 adoption of the $22-$28 price band for the OPEC basket of crude, oil prices only exceeded $23.00 per barrel in response to war or conflict in the Middle East.”

The problem is finding new reserves that we want to extract. For example, there is oil in the Arctic national Wildlife Refuge. Do we want to touch it at this time?

Note that the oil sands don’t require much exploration. It’s basically open pit mining. However, the recovery of oil from the oil sands is inefficient in terms of the energy equation. You need to spend a lot of energy to produce a useable barrel of oil.

It calls into question whether it is worth the effort, after factoring in the environmental consequences. That’s is why the greens are calling for ‘full pricing’.

Volkman said

“And even still, the profits are pretty tame compared to some other industries.”

Actually, conventional oil producers have historic costs very much lower than current oil prices. That’s why they are called windfall profits.

Yes, successful software companies have very high margins. That’s because of intellectual copyright protection.

Robert! Thank you very much for your contribution.

By JimTan, at 12:08 p.m.
Wheat said

“Classical liberalism is not espoused by any of the existing political parties.”

Classical economics? Do you mean David Ricardo and Comparative Advantage? Or, Adam Smith and the iconic idea of the Invisible Hand? I assure you that both concepts are alive and well in this land.

“Governments of all stripes and pretty much the public choose to undermine the charter of rights for the sake of bad drivers.”

How does the Charter clash with the problem of insuring bad drivers?

“I don't see that running refineries is really something that a government should be doing.”

Actually, the current manifestation of this belief dates from the end of the Cold War. The extreme version says that we should privatize health care, deregulate utilities and transportation, and outsource defense work

I do not agree with your assertion that government companies are unable to run refineries. Note that public utilities are doing a competent job running power plants (nuclear and fossil) and hydro projects. It is the prospect of energy trading that is distracting the utilities from building enough capacity for power security.

Note that the main obstacle to an independent Canadian distribution system is logistics. Crude oil and refined products flow between north and south. We would have to build a separate Trans-Canada distribution system. That is why eastern Canada is dependent on imported oil.

“and underpriced electricity for over 40 years”

There is the separate issue of whether governments should subsidize domestic users. IMO, we can and should do so if our costs of production are low. It helps our rural population. There is the additional problem of energy efficiency. But, that can be met by non-price measures.

Note that Canadian taxpayers subsidize universal health care. The Americans do not. But, they subsidize agriculture. To each his own.

By JimTan, at 12:27 p.m.
//There is the separate issue of whether governments should subsidize domestic users. IMO, we can and should do so if our costs of production are low. It helps our rural population.//

$100 billion dollars of stranded hydro debt in Ontario accumulated by incompetent governments over 40 years represents an intergenerational transfer of much higher costs to our grandchildren.

By whyshouldIsellyourwheat, at 12:56 p.m.
“Classical liberalism is not espoused by any of the existing political parties.”

I am a "classical liberal", where the usual definition is interpereted in a postmodern sense. A "classical liberal" believes in fundamental individual rights and limited democratic government.

By whyshouldIsellyourwheat, at 1:01 p.m.
//How does the Charter clash with the problem of insuring bad drivers?//

Governments limit my fundamental right to security of person by limiting my right to sue for fair compensation in favor of the "right" of bad drivers to drive.

Essentially all political parties choose the tyranny of bad drivers over the charter right of security of person. When you know someone who has be injured in a car accident and has been unable to get fair compensation, you will realize this.

By whyshouldIsellyourwheat, at 1:07 p.m.
The Rat "I'd suggest that you might want to rethink that statement. I know Liberals have few seats outside Toronto and Montreal, and a smattering in Vancouver, but it would behoove you guys to remember the vastness of our country and that millions of people do not live in areas with transit."

According to StatsCan in 2001 79.6% of the Canadian population was considered urban... there may be millions of people who don't live in areas with transit... but the vast majority of us do.

http://dissemination.statcan.ca/english/freepub/82-221-XIE/00503/tables/html/44_01.htm

By MERBOY, at 2:06 p.m.
Sorry I missed this (been away) but I'm glad you noticed that and brought it up -- I agree completely. This was a lame-o move by both Dion and Layton. Dion's suggested in public before that high gas prices could be of benefit, so why he is complaining??? This leaves me confused, and cold.

By Jacques Beau Vert, at 2:36 p.m.
A true socialist party should be AGAINST most environmental reforms.

This sounds ridiculous to me.

By Jacques Beau Vert, at 2:41 p.m.
The Rat and Robert S are a bit off on the "rural cars" bit -- most of Canada's population is urban, so changing their habits and transit patterns would be very sufficient. Rural folks are always going to have to drive - and it's really no big deal in Canada.

By Jacques Beau Vert, at 2:42 p.m.
And, also, I'm 100% behind the fuel cost reduction allotted to farmers. (Is that just Ontario, or federal?) It's a worthwhile subsidy, I think.

By Jacques Beau Vert, at 2:43 p.m.
Oh, MerBoy said it best -- I should read all the way through before I comment.... *le sigh*

By Jacques Beau Vert, at 2:51 p.m.
Wheat said

“$100 billion dollars of stranded hydro debt in Ontario accumulated by incompetent governments over 40 years”

I’m not sure where you got your numbers. Ontario Hydro was profitable up to the 1998/9 restructuring. For 1995, OH had a net income of @$600m. However,

“In 1999, Ontario Hydro had a provincially guaranteed debt of approximately $38.1 billion (2) (Ontario Electricity Financial Corporation, 2000; OEFC), or about a third of total provincial indebtedness. Through the 1990s, roughly 35 percent of the utility's electricity revenue went towards paying debt interest (Trebilcock and Daniels, 2000, p. 163). Much of this debt was the result of over-expansion and major cost-overruns in the construction of nuclear generation facilities.”

So, you were wrong about the consumer subsidy. Yes, the utility made major capital mistakes. But, so had the private sector in fiber optics cables during the late 1990s.

The ‘excess’ debt from Ontario Hydro was transferred to the Ontario Electricity Financial Corporation. The OEFC says that the amount of ‘stranded debt’ was only $20.9 billion in 1999, since reduced through payments from OPG and Hydro One.

The OEFC expects to clear the debt between 2012 and 2020.

Here’s the interesting part. The PC government restructured Ontario Hydro into 5 entities. They tried to deregulate the energy market and privatize Hydro One. The privatization failed because of a legal challenge.

The deregulation was disastrous because spot prices rose as much as 30x. Sounds familiar like Enron and the California electricity crisis?

In 2002, the PC government froze retail prices for smaller customers amounting to about 50% of volume. That’s what happens when you trust yourself to market forces.

BTW, you don’t have to thank me for doing your research for you.

By JimTan, at 5:00 p.m.
Wheat said

“When you know someone who has be injured in a car accident and has been unable to get fair compensation, you will realize this.”

Strange that you mentioned this. A minivan hit my car last year. My car as written off and I was a walking wounded for a month. In just six weeks, the ICBC paid expenses and awarded $3k for ‘suffering’. My ambulance chasing lawyer (gets 1/3 of the award) was hinting that my injuries were more extensive. So, that’s where our insurance premiums go.

Is this the kind of exploited freedom you want?

By JimTan, at 5:04 p.m.
jimtan:
//“In 1999, Ontario Hydro had a provincially guaranteed debt of approximately $38.1 billion (2) (Ontario Electricity Financial Corporation, 2000; OEFC), or about a third of total provincial indebtedness. Through the 1990s, roughly 35 percent of the utility's electricity revenue went towards paying debt interest (Trebilcock and Daniels, 2000, p. 163). Much of this debt was the result of over-expansion and major cost-overruns in the construction of nuclear generation facilities.”//

Okay so wrong by a factor of 2.5...but the point is still valid...there was nearly $40 billion dollars of standed hydro debt at the turn of the century. The point remains the same. 40 years of incompetently run electricity system where the government refused to charge rates to cover the cost of the system.

You do not address the dependence by Ontario on the United States for electricity in the summer and in the winter. The system was not overexpanded as you suggest. It was and is still inadequate.

Pretty hard to get tough on the United States on anything if you are relying on them to keep the heat on in Toronto in winter.

By whyshouldIsellyourwheat, at 5:15 p.m.
Vollman: A true socialist party should be AGAINST most environmental reforms.
Green: This sounds ridiculous to me.

The first casualty of the environmental crusade is cheap heat, energy and gas.

Who does that hurt most?

The working class.

Isn't that who the socialists are supposed to be looking out for?

The funds for the various environmental initiatives, where are they going to come from? Funds currently used for programs to help the working class. Screwed again!

Meanwhile, who gets the gains? Who gets the contracts for new green industries? Who gets the financial incentives for buying expensive energy-efficient things (from light bulbs, windows and insulation to hybrid cars)? The working class? Not likely. Screwed again!

That is the paradox of a socialist espousing environmental reforms.

"But environmental reforms don't HAVE to hurt the working class." Maybe ... but I've yet to hear any socialists saying that, or presenting such a plan.

By Robert Vollman, at 6:14 p.m.
Jason Bo Green "Oh, MerBoy said it best -- I should read all the way through before I comment.... *le sigh*"

I probably could've said it even better...

79.6% of Canadians are considered urban and most likely have access to transit...

100% of Canadians breathe air that isn't as clean as it could be because of pollution from cars driven by people who might drive them less if their local transit system was of a better quality.

By MERBOY, at 8:36 p.m.
Sean Cummmings: why then does the price go up *before* the underground tank at the local gas station is filled up with gas at today's price?

Because they charge you based on what it will cost them to replace the gas that you bought.

By The Invisible Hand, at 9:01 p.m.
I led a successful targetted gasoline boycott in our community a few years ago that resulted in a price war.

We observed our market of about 40 stations and publicized which companies were the first to consistently raise prices.

Then we led a city wide boycott of those companies.

The independents got brave and offered better discounts to keep market share.

The refiner/retailers got angry and cut local prices well below cost to as little as 19 cents per litre to punish the independents, whose cost was over 50 cents per litre at the time (2003).

There are several independent sites which verify the dramatic increase in gasoline refining company profits in recent years.

There has been no corresponding investment in gasoline refining capacity, for good reason.

Three companies control the wholesale price of gasoline and sell to all the retailers.

Price gouging is our reality and I have the evidence to prove it.

By Down & Out in L A, at 10:38 p.m.
volkman said

"Isn't that who the socialists are supposed to be looking out for?"

Robert Volkman for leader of the NDP!

Boy! They're gonna rock with Robert in charge.

By JimTan, at 11:06 p.m.
down and out said

"I led a successful targetted gasoline boycott in our community a few years ago that resulted in a price war."

"Price gouging is our reality and I have the evidence to prove it."

Well done! Keep up the good work!

By JimTan, at 11:08 p.m.
Wheat said

“Okay so wrong by a factor of 2.5...but the point is still valid...there was nearly $40 billion dollars of standed hydro debt at the turn of the century.”

You appear to have an attention deficiency problem. The OEFC said that the stranded debt was $20.9b. You’re wrong by a factor of ONLY 5x.

“ The point remains the same. 40 years of incompetently run electricity system where the government refused to charge rates to cover the cost of the system.”

Then, why was Ontario Hydro running profits? Please quote the source for your assertion!

“You do not address the dependence by Ontario on the United States for electricity in the summer and in the winter. The system was not overexpanded as you suggest. It was and is still inadequate.”

The quote I used was lifted from a NGO paper. Please quote your source.

“Pretty hard to get tough on the United States on anything if you are relying on them to keep the heat on in Toronto in winter.”

Which is why we need to expand refinery and generating capacity in Canada. That’s not going to happen with privatized companies because managers will try to maximize Return on Assets. They can do that by minimizing the denominator. Do I need to explain this concept to you?

By JimTan, at 11:26 p.m.
As somebody who doesn't own a car, or live in Canada, I think the time is nigh for high gas prices in Canada.

By french wedding cat, at 12:02 a.m.
jimtan, Ontario hydro only ran profits towards the end of its tenure. Though, I will admit, the main source of its large debts was the massive capital costs of building the Bruce, Darlington and Pickering (and other plants).

By french wedding cat, at 12:06 a.m.
Hoser said

“Though, I will admit, the main source of its large debts was the massive capital costs of building the Bruce, Darlington and Pickering (and other plants).”

Thank You! I’m not getting any help from people with the Ph.D.

Based on quick research, it looks like the cost overrun for the nuclear plants alone was over $10b. Final cost was 3x of original estimate. And, the earlier plants needed to be replaced much earlier than expected. Ontario Hydro took a big hit on nuclear power. With interest included, this division accounted for almost all of the ’stranded’ debt.

It seems that there were power shortages from 2003 to 2006 because

a) the PC government didn’t build any more capacity after they decided to privatize
b) the PC government deferred replacement of aging nuclear reactors. Some are operating at 36% of capacity.
c) The Northeast Blackout of 2003 knocked out some nuclear reactors for 2 years.

As a result,

“The share of electricity imports as a percentage of Ontario’s total electricity consumption has increased in recent years, topping 6% in 2003 and 2004, up from the 3-4% range in the previous six years.”

It doesn’t get easier for Ontario because the McGuinty government has decided to replace all the coal-fired plants with gas-fired plants by 2009.

By JimTan, at 3:58 a.m.
//“The share of electricity imports as a percentage of Ontario’s total electricity consumption has increased in recent years, topping 6% in 2003 and 2004, up fr
om the 3-4% range in the previous six years.”//

MIsleading...because nearly all of those imports come at the critical times for human security, the hottest days of summer and the coldest days of winter.

The electricity industry in Ontario has been grossly mismanaged for 40 years, because of too much political interference at times, and too little oversight at times.

Aside: A company can show profits, while the balance sheet deteriorates. Ontario Hydro was on the road to bankruptcy since it was piling up debt, and it wasn't raising rates to cover the true lifecycle cost of the kilowatts they were producing.

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