Most of oil industry's profits come from production, not gasoline sales

Thursday February 13, 2003 - 16:23:51 EST

CALGARY (CP) - Soaring gasoline prices may help fatten profits of Canada's major oil companies, but they contribute far less than rising crude oil prices to the industry's bottom line.

In the 2002 fourth quarter, Canada's four major oil companies - Imperial Oil, Petro-Canada, Shell Canada and Suncor Energy - nearly tripled their profits to a combined $1.3 billion. But much off the profit came from soaring oil and natural gas prices and other factors, which led to dramatic increases in earnings from the so-called upstream end of the business. Profits in the downstream - refining and marketing of gasoline - for the three biggest refiners and marketers - Imperial, Petro-Canada and Shell - rose to $314 million from $208 million in the 2001 quarter.

But with gasoline prices now above 80 cents a litre across the country, federal politicians are accusing the oil industry of profiteering on the backs of drivers.

Federal Liberal MP Dan McTeague, a longtime industry critic, says "consumers are being held ransom" by high gasoline prices and he accused oil companies of raising refinery profits from about five cents a litre to 15 cents.

Those increases, McTeague warns, are going to show up when the oil companies report their first-quarter profits in April for the January-March quarter.

The profits "will be obscene and they will be unprecedented or very close to unprecedented as -a result of maintaining these refinery margins," McTeague said in an interview.

"There's no money in retail. They don't have to make money at retail when they're making 14 cents a litre at the refinery and if they happen to be in the crude business, of course they're making money at the crude level. It's a transfer price within the same company."

In the fourth quarter, Petro-Canada, owner of a national gasoline station chain, said operating profits at its marketing network rose to $15 million from $10 million in the 2001 quarter. Refinery profits, meanwhile, increased to $63 million from $38 million during the same period.

At Imperial Oil, which owns about 2,500 Esso stations, profits in refining and gasoline rose to $128 million from $75 million, with most of the increase coming from the company's refineries.

Meanwhile, Shell Canada, operator of the Shell station network, earned $108 million from its refining and marketing business, up from $85 million in the 2001 quarter.

McTeague said the government needs to consider creating a "firewall" between the retail and refining side of the business so that big companies can't produce, refine and sell gasoline under one corporate umbrella.

It's not a competitive business when the oil companies own the refineries and the gas retailers, he said.

Bill Simpkins, spokesman for the Canadian Petroleum Products Institute, said at the country's gasoline stations "there's a high level of competition for your business as a motorist."

"There's no real big return on selling gasoline," he said, instead additional money is made through the adjoining convenience store and car wash.

"The oil companies that are involved in refining and distribution and marketing, their profit on a litre of gasoline is about a penny. The dealer is working with a return of about three to five cents (per litre) on his business."

"It's a high-volume, low-margin business."

Neil Levine, spokesman for Suncor Energy Products, which operates about 300 Sunoco stations in Ontario, said more government regulation won't work because prices are affected by cost, supply-and-demand and local competition.

"What consumers are concerned about is the volatility. But what we're dealing with here is a commodity and prices go up and down. Regulation hasn't been the answer anywhere it's been tried."

Levine also said the fact Calgary-based Suncor Energy is a major oil producer, refiner and retailer doesn't matter.

"You're paying a world price (for oil). It's not a made-in-Canada price versus a Suncor price versus a Venezuela price. It's a world price for crude oil."

The gasoline price is also based on the world wholesale price for gasoline.

"The price goes up and down. Sometimes the refining end makes more money, sometimes the refining end makes less money. But in the end, take a look at the oil industry as a whole. There are good years and bad years."

"People need to realize they're paying a fair price for their gasoline even at the prices now. They're among the lowest in the world still."