DO REFINERS KEEP CAPACITY LOW IN ORDER TO DRIVE PRICES HIGHER?

Calgary Sun (Alberta)

Studies have repeatedly shown there’s no collusion among oilpatch players when it comes to gasoline prices.

For motorists, that’s about as reassuring as sucking on a tailpipe and being told we’ll enjoy it.

Those prices are what the market will bear — forged in a ruthlessly competitive environment — go the platitudes.

But that’s like telling us the auto insurance industry charges us purely what the market dictates, when everyone’s forced to have coverage by law.

Similarly, most people need to drive, so we’re stuck with whatever ransom’s demanded.

As for competition, the obvious proof on the street is lockstep retailers compete furiously to see how high and fast they can ratchet up their prices. Who needs official collusion?

I can buy milk for 30 cents less by walking across the street but saving five cents a litre requires a drive across town to break free of the duplicate shakedowns.

Just think of the challenge of finding a no-smoking bar in pre-2008 Calgary and you get the picture of how well choice in the gas retailing industry works.

But the real muscle behind the shock therapy at the pumps appears to be the refining sector and the move among energy producers to keep it as tiny as possible to inflate prices.

The U.S.-based Foundation for Taxpayer and Consumer Rights (FTCR) has unearthed internal documents from major industry players from the mid-to-late 1990s expressing the desire to limit refining capacity to pad their bottom lines.

Chevron memo: “A senior energy analyst at a recent American Petroleum Institute convention warned if the U.S. petroleum industry doesn’t reduce refining capacity, it will never see any substantial increase in refinery margins.”

A Texaco memo: “Significant events need to occur to assist in reducing supplies and/or increasing the demand for gas.”

You can bet operators of four major Gulf Coast refineries still shut down by Katrina — we’re told for a few months — are in no hurry to get back on line.

The documents also show how the industry manoeuvred to exploit environmental regulations that have limited the growth of refining capacity — ones they favoured.

The U.S. has been awash in surplus crude this summer, leading Asian producers to dump their oil on the North American market where gas prices are being kept artificially high.

In Canada, it sounds like much the same story, where eight refineries were shut down from 1991-96 and refining capacity declined 13% between 1980 and 1984.

It’s no secret the building of refineries in Canada hasn’t kept pace with the demand for their product.

A Liberal task force set up in 1998 to probe competition in the gasoline industry following an earlier price spike found large refiners Imperial Oil, Shell and Petro-Can controlled 55% of the downstream retail volume.

It also concluded its own government’s Competition Act was too feeble to control profiteering.

During this latest round of gouging, committee chairman and Toronto-area MP Dan McTeague repeated a call that major refiners’ control of pump sales be limited to 10% of the market.

“By owning and therefore controlling the number of refineries in existence and by closing many of their own retail outlets under rationalization, refiner-marketers can also have an impact on the nature of supply and demand in the Canadian marketplace,” concluded the committee.

“The committee has come to believe inventory shortages can’t account for the full increase in gasoline prices Canadian consumers experience on long weekends.”

Indeed, not one of the Canadian refineries was blindsided by Katrina’s wrath, yet gasoline prices in this country are higher than those in the U.S.

Some in the industry say that’s because Katrina has forced Canadians to send more crude oil south — even though there’s no shortage of it in the U.S.

President George W. Bush’s release of some oil from the country’s strategic reserve will merely supply refiners with cheaper crude in which to produce expensive gasoline.

And now prices here are miraculously receding even though there’s been no new refining capacity added in Canada.

As for McTeague’s 1998 committee, here’s one intriguing recommendation his government’s loathe to heed:

“The GST should only be applied to the amount of gasoline purchased and not to other taxes as well,” it states.

Ottawa argues any gasoline tax retreat would simply be filled by another price hike.

Testing those waters might prove incredibly revealing.