Canada: big oil profiteering from high gas prices

Gas prices have shot up to around $2 a litre in most of Canada. This marks an increase of 50 per cent since the beginning of the year, and is a huge burden on working class families. Some academics believe that these costs are discretionary, but the reality is that most workers have no choice but to pay these high prices. Canadians are shelling out more and more to simply get to and from work. Workers need a socialist solution to the high cost of gas.

Global News conducted a poll to investigate the ways that Canadians have changed their habits in response to the current situation. It released its findings in a playfully titled article, “As inflation surges, Canadians find creative ways to save, cut costs”. The article goes on to list the creative ways that Canadian workers are cutting costs: 54 per cent were dining out less, 47 per cent were putting off new purchases like clothes, and 46 per cent were cutting back on entertainment spending. Seventeen per cent of parents were cutting back on their kids’ organized sports, 24 per cent said they were eating less meat, and 22 per cent said they were buying fewer fresh fruits and vegetables. Eight per cent of those surveyed said they deleted or did not renew a medical prescription in order to offset inflation. Workers have had to get “creative” by cutting back on the small luxuries that make life bearable, and the really “creative” ones have cut back on essential items such as medicine.

Huge profits

While workers struggle to make ends meet, the energy giants are making eye-watering profits, and they have been since late last year. Imperial Oil reported bringing in $908 million in profits in the third quarter of 2021, which marked its highest quarterly net income in more than 30 years. In 2022, Canada’s largest oil and gas producer, Canadian Natural Resources Ltd., doubled its profits compared to last year, bringing in $3.1 billion in the first quarter alone. Cenovus saw its profits soar sevenfold to $1.6 billion in the first quarter. Suncor tripled its profits to $2.95 billion in the first quarter and hiked its dividends to investors to the highest in its history. Interestingly, while making these lucrative profits, Suncor actually decreased production in the first quarter. While ordinary people suffer from these climbing gas prices, many of the oil and gas companies are raking in record profits and some are doing this while producing less.

How did we get here?

The pandemic in 2020 caused a sharp decline in demand for fuel. This is because during the lockdown there was a decline in manufacturing (which requires fuel) and fewer cars on the road. While demand for fuel collapsed, the supply stayed the same, leading to very low fuel prices. Commuters will fondly remember when fuel was under 70 cents per litre! The oil barons weren’t so fond. In response they cut back on production, reducing the global supply of oil. This brought prices up to more or less pre-pandemic levels. They laid off tens of thousands of workers in the process, but order was restored!

The oil barons ignored one inevitability (a rather obvious one): eventually the lockdowns would end and workers would return to their daily commutes and the demand for fuel would rise again. This is exactly what happened earlier this year. Demand for fuel reached pre-pandemic levels but the oil barons were reluctant to ramp up production and increase the fuel supply. The result? A growing supply shortage, which resulted in rising fuel prices. Russia’s invasion of Ukraine exacerbated the supply shortage of fuel by disrupting some global supply chains, but the oil barons are ultimately responsible for the supply shortage which has driven up fuel prices and which they are currently profiting from.

While ordinary people suffer from these climbing gas prices, many of the oil and gas companies are raking in record profits / Image: shannonpatrick17, Wikimedia Commons

The only way we will see pre-pandemic fuel prices again is if the energy sector increases the output of fuel. If they increase the output, the supply shortage will end and prices will come down. This would be great for society as a whole but bad for the energy giants, who hold all the power. It would mean an end to their superprofits. Unsurprisingly, they are reluctant to do this. Via Reuters: “The Canadian Natural, the country’s biggest producer, plans to bump up oil and gas output by 5% this year, while Cenovus (CVE.TO), Canada’s second-largest oil and gas producer, said its 2022 production guidance published in December remains unchanged.” The energy companies don’t plan on fixing this crisis anytime soon. Why would they? While ordinary people suffer, they are making superprofits!

The energy giants would only take measures to lower fuel prices if they lost so many consumers as a result of the high prices that it started cutting into their profits. This is not a serious possibility when it comes to fuel. What are people going to do, ride their bike to work? This isn’t an option for those who commute long distances. Or maybe take transit instead? For many commuters this would mean spending an extra hour or more getting to work each day. Could everyone maybe sell their current car and buy an expensive electric car instead? To pose the question is to answer it. For most workers these are not real options. Regardless of the price, ordinary people will continue to purchase fuel because we need fuel to get to and from work, and we will pay for it by cutting back on other things.

Rafi Tahmazian, portfolio manager at Canoe Financial in Calgary, which owns shares in oil sands producers, summed it up best. “They can sit with their feet up right now, with money flowing into their pockets, while hardly working,” Tahmazian said of the energy companies. He continued, “Why would they want to be a growth business again?”

While these executives sit with their feet up and rake in the profits, Canadian workers are forced to find “creative” ways to scrape by. And with summer fast approaching, gas prices are projected to climb even higher, like they do every year. How many more families will have to cut back on fresh produce next time the price of fuel goes up?

How do we solve the crisis?

Luckily for us, the politicians have leapt into action to save the day! Tory politicians across Canada propose to solve the crisis by getting rid of fuel taxes. In Ontario Doug Ford has promised to lower taxes on oil and gas from July to December. Taxes will be lowered by five cents, from 14 cents a litre to nine cents a litre. The theory is that there will be a five-cent per litre reduction in prices, but capitalist theory does not always match reality. It will only happen if the energy giants don’t respond to the five-cent-per-litre tax reduction by raising prices by five cents. Assuming Ford’s plan does work and the price of fuel does go down by five cents a litre, we are still left paying at least $1.90 for a litre of gas. Reducing taxes is no solution, and leads to austerity in public services.

The Ontario NDP proposes to solve the crisis by introducing gas price regulations. The ONDP proposed a private members bill (three times) to this effect. The proposal explains, “The Ontario Energy Board can and should regulate the retail price and wholesale mark-up of gas — so that prices are fair, stable and competitive regardless of where you live.” It goes on to point out, “Five other provinces have some form of gas price regulation to keep the price at the pump fair, including neighbouring Quebec.” Unfortunately for the ONDP, Quebec’s price controls aren’t exactly working. Currently, fuel is more expensive in price-controlled Quebec than it is in Ontario! Clearly artificially imposed price controls don’t work in practice. The only way to genuinely bring down fuel prices is to hire more workers, drill more rigs and ramp up production, or alternatively, to massively expand alternative energy infrastructure. Unfortunately the government cannot make that happen because the energy sector is privately owned. You can’t control what you don’t own.

Welfare queens

None of the solutions proposed by the politicians can solve the current crisis. The energy giants can do whatever they want because they own the rigs, the mines, and the refineries. They use this power to squeeze as much out of us as possible. While they gouge us at the pump, they are also taking handouts from the government that are paid for with our tax dollars. In 2020 the industry took at least $18 billion in handouts while laying off tens of thousands of workers. This year, 2022, while they are profiteering off the soaring fuel prices of their own making, they are getting government handouts on top of that.

The fossil fuel industry has been taking billions in subsidies from us every year for decades and we don’t actually know how much, due to a lack of transparency. A report by the International Monetary Fund released in 2014 estimated that the fossil fuel industry in Canada receives an average of $34 billion a year in subsidies. It’s anyone’s guess what the total amount is that the fossil fuel industry has leeched off of taxpayers over the years. This is because the exact amount is a secret, between the capitalist state and the fossil fuel industry. If it was public knowledge that the government has given them our money while they screw us over, a lot of people would ask why.

Expropriate the profiteers

As long as the energy sector remains in private hands the decision makers will be the capitalists who own these companies. Their decisions are only driven by one thing: how to maximise profits. We are seeing today how far they are willing to take it. They laid off tens of thousands of workers during a pandemic. They have been gouging workers in a time when everything is getting more expensive and they have no intention of stopping. And all the while, they are taking billions of dollars in our taxpayer money to further line their pockets. They are able to do all of this because they own the energy sector. Reforms like tax cuts and price controls will not solve the crisis at hand because ultimately the power still lies in the hands of the capitalists.

Fuel is a basic necessity that we need to function as a society, it should not be in private hands. The workers need to take control of the industry and bring it under common ownership and democratically run it themselves. We can collectively decide how much fuel we need and how we want to distribute it. A collectively owned and democratically run energy sector would also make it possible to begin retooling production to finally transition away from fossil fuels to sustainable alternatives. The Canadian state is clearly in bed with the fossil fuel industry, as Justin Trudeau admitted when he said “Canada is a major oil-producing company!” With collective ownership we could also guarantee against job losses. Under private ownership jobs in the sector are under constant threat, because the capitalists are always looking for ways to save money and maximize profit. We need a socialist solution for workers in the industry and the wider working class facing high prices. Capitalism offers no way out.

Originally published on 2 June at marxist.ca |