www.morningstar.ca 26 Feb 03(1:01 PM) | E-mail Article to a Friend

EDMONTON, Alberta (Reuters) - Skyrocketing oil and gas prices prompted energy-rich Alberta on Wednesday to more than double its projected budget surplus to a hefty C$1.8 billion ($1.2 billion) as oil industry revenues pile up.

The western Canadian province's government also boosted its outlook for commodity prices in the current fiscal year, a day after Premier Ralph Klein ruled out immediate rebates to help Albertans cope with surging heating bills.

The forecast surplus for 2002-03, as detailed in the government's third-quarter report on Wednesday, is up from C$724 million in the budget last March and C$199 million in the previous quarterly update.

As Canada's biggest energy producer and exporter, as much as a third of revenue in the province of 3 million people is derived from the oil and gas sector.

World oil prices have simmered near two-year highs in recent months because of fears of a supply disruption should there be a war in Iraq. Adding to jitters, a protracted strike in Venezuela has also cut oil exports from the major producer.

This week, natural gas surged to levels not seen in 25 months due to cold weather in key North American consuming regions as markets fretted over dwindling inventories.

Alberta Finance Minister Pat Nelson said her Conservative government increased its oil price forecast to $28.86 a barrel, up 44 percent from the outlook in the budget.

Natural gas at the Alberta wellhead was now expected to average C$4.65 per thousand cubic feet, up 55 percent.

Total revenues were projected at C$22.6 billion, up from the budget forecast of C$19.9 billion, due to the increased take from the oil industry. Expenses are pegged at C$20.7 billion, up from C$19 billion.

Of the surplus, which the Klein government calls an "economic cushion," C$900 million will go to a new capital account to be used to bolster infrastructure such as new schools and hospitals, something it has been accused of under-funding.

Another C$500 million is earmarked for debt reduction, while the remainder will go to a new "sustainability fund" for unforeseen expenses such as fighting forest fires and dealing with other natural disasters. Alberta wants to set aside C$2.5 billion in that account eventually.

On Tuesday, Klein ruled out consumer rebates to deal with high natural gas prices, despite a chorus of calls from cities and municipalities. He said rebates, which Albertans received during the last gas price spike two years ago, are not meant to deal with short term price increases.

($1=$1.49 Canadian)

www.canada.com JAMES STEVENSON Wednesday, February 26, 2003

Canadians enjoy some of the lowest gasoline prices in the world and if blame is to be assessed for rising prices they should look at government taxes at the pumps, Imperial Oil president Tim Hearn said yesterday.

Hearn said Canadian pump prices - which averaged 82 cents a litre last week - can be directly connected to international events such as the continuing troubles in major oil producer Venezuela and prolonged war clouds over Iraq. A particularly cold winter on North America's east coast has also boosted demand and kept crude prices sky high.

"Just take the tax out and take a look at how Canada compares to the U.S. today," Hearn said in an interview. "And everybody says the U.S. has the lowest prices in the world."

Taxes account for almost 40 per cent of the cost of gasoline at Canadian retail stations. Imperial is Canada's largest oil producer, operates the national Esso brand of 2,500 service stations and is 70 per cent owned by global energy giant ExxonMobil.

Hearn said the real price of gasoline has gone down in the past two or three decades, while provincial and federal taxes have risen by more than twice the rate of inflation.

"I guess you can never avoid the politics of mischief."

Last week the federal industry committee demanded to hear from Canada's top oil executives on the recent surge in oil prices, which hit Canadians both at the pumps and through home heating oil.

The high price of fuel prompted MPs from all political parties to accuse Canada's big energy companies of collusion and price-gouging. But Hearn said the energy market in Canada is "as efficient" as any country in the world.

cnews.canoe.ca By JAMES STEVENSON

CALGARY (CP) - Canadians enjoy some of the lowest gasoline prices in the world and if blame is to be assessed for rising prices they should look at government taxes at the pumps, Imperial Oil president Tim Hearn said Tuesday.

Hearn said Canadian pump prices - which averaged 82 cents a litre last week - can be directly connected to international events such as the continuing troubles in major oil producer Venezuela and prolonged war clouds over Iraq. A particularly cold winter on North America's East Coast has also boosted demand and kept crude prices sky high.

"Just take the tax out and take a look at how Canada compares to the U.S. today," Hearn said in an interview. "And everybody says the U.S. has the lowest prices in the world."

Taxes account for almost 40 per cent of the cost of gasoline at Canadian retail stations. Imperial is Canada's largest oil producer, operates the national Esso brand of 2,500 service stations and is 70 per cent owned by global energy giant ExxonMobil.

Hearn said the real price increase of gasoline has gone down in the past two or three decades, while provincial and federal taxes have risen by more than twice the rate of inflation.

"I guess you can never avoid the politics of mischief."

Last week the federal industry committee demanded to hear from Canada's top oil executives on the recent surge in oil prices, which hit Canadians both at the pumps and through home heating oil.

The high price of fuel prompted MPs from all political parties to accuse Canada's big energy companies of collusion and price-gouging. But Hearn said the energy market in Canada is "as efficient" as any country in the world.

"Maybe the committee should have an investigation as to why taxes have been going up for the last 30 years."

Imperial (TSX:IMO) said it has not received any request to appear in front of the federal committee but would be more than willing to defend itself if asked.

"I don't think the Canadian oil industry has anything to be apologetic for," said Hearn.

In a rare meeting with reporters, the head of Imperial said his first year on the job in 2002 was a good one, with earnings of $1.2 billion - the third-largest haul in company history.

Along with a large involvement in the northern Alberta oilsands, including a major ownership stake in giant Syncrude, Imperial is playing a lead role in trying to get a new natural gas pipeline built south from the Mackenzie Valley in the Northwest Territories to the energy-thirsty U.S. market.

Hearn said he was disappointed in the delays in getting preliminary information on the mega-project to regulators. Imperial is six months behind where it wanted to be as partners wait for the Aboriginal Pipeline Group to come up with its $70-million, one-third cost of the preliminary design phase.

He hopes the process can get underway in a few weeks.

Hearn wouldn't confirm recent reports that the Aboriginal Pipeline Group has struck a deal with Calgary-based TransCanada PipeLines after Ottawa refused to guarantee a loan.

"For them to develop a potential funder, and if it's someone that can add value to the project, I think we'd welcome them. I wanted us to be further along than we are today, but it's more important that we get this right at this point in time.

Hearn told analysts months ago the pipeline could be up and running by 2007, but on Tuesday he said funding delays would push that earliest-case scenario back to 2008.

"I think it's a project that is extraordinarily important to the country - the federal government is a big net beneficiary of this project, the aboriginal peoples of the North should be major beneficiaries of this, and of course Imperial and the other producers will also benefit."

www.canada.com GILLIAN LIVINGSTON AND CHRIS MORRIS Canadian Press Sunday, February 23, 2003 

Canadians are facing sticker shock on a slew of products, from gasoline to heating costs, bread, milk and other basic grocery items, and it could put a deep dent in their budgets. (CP Archive)

TORONTO (CP) - Canadians are facing sticker shock on a slew of products, from gasoline to heating costs, bread, milk and other basic grocery items, and it could put a deep dent in their budgets.

Gas pump prices are already at 90 cents a litre in some parts of the country and the rising crude oil price to more than $35 US a barrel - related to war fears and Venezuela's general strike - has caused a spike in home heating fuel during what's been a bitterly cold winter across most of Canada.

Natural gas prices are also on the rise.

Now skyrocketing transport costs are trickling into the prices consumers pay for products such as fruits and vegetables that get shipped into and across the country. And last year's drought has put upward pressure on grain prices.

That affects livestock feed costs and flour prices, which in turn boosts the cost of bread and meat.

Car-loving Canadians traditionally gripe about the cost of gasoline, but with pump prices edging ever closer to the dreaded $1-a-litre level, there's good reason.

For some, that means the car will have to be left in park.

"I'm on a very strict budget and, because of that, I can only spend $40 a month on gas," said Dave Steeves, who works at a communications company in Toronto.

Because of rising fuel prices - adding $10 to $15 to the cost of filling up his car, "now what's going to happen is I'm not going to use the car," he said.

Last month the car sat idle for the final two weeks of the month because it had guzzled up its budgeted quota, Steeves said. That will likely happen this month too, he added, which is a frustrating situation.

As a result, Steeves is walking to get groceries and to take his two children places. And he's relying on friends to help him get to work and his hockey games.

"If I vary from (my budget), then something else won't get paid," he said, adding that although the government could shift taxes away from gasoline, it would just show up somewhere else.

As for the cost of groceries, "what else can you do but suck it up and move on?" he commented.

So far, prices on fruits and vegetables haven't gone up much, but that's expected to change if gasoline prices stay at elevated levels.

Ralph Boyd of the Atlantic Provinces Trucking Association said prices of fresh fruit and vegetables from California, Florida and the southern states will rise most quickly and most steeply, "simply because transportation is a large part of the cost of those goods."

Boyd said there's a looming crisis in Atlantic Canada because few trains come to the region and air freight is uneconomical, so trucks account for about 95 per cent of consumable goods brought into the area.

Earlier this month, gasoline prices took a hike of 12 to 13 cents a litre across New Brunswick, the largest increase in the country. It's only a matter of time before those higher bills get passed down the line.

"We can't absorb those costs. We have no choice but to pass them on to the users of our service," Boyd said.

Although grocers try to keep those price spikes from hitting the shelves immediately, it's impossible to remain in business without charging more when costs escalate, said Mike Apostolou, the manager at Sun Valley Fine Foods in Toronto.

"The companies have to raise their prices sooner or later," he said. "Some try to hold off as much as possible but it comes to a point where they say, 'We're going to go belly-up if we don't raise it.' "

In recent months the cost of milk, cream, flour, cookies, bread and related products, has risen, Apostolou said.

"The consumer is going to be spending more money to buy staple items like milk, eggs, juice, bread."

Bread prices are up about a nickel or so per loaf, although that depends on the product, said Geoff Wilson, a spokesman for grocery giant Loblaw Co. and breadmaker Weston, an affiliate company. But producers have been trying to keep costs from hitting product prices, he said.

On Friday, Maple Leaf Foods reported lower fourth-quarter profits partly because of higher feed costs for its meat operations. Meanwhile, its Canada Bread bakery division - which makes the Dempster's, Olivieri and Tenderflake brands - passed on wheat price increases to its customers.

Pete Luckett, the Cockney grocer who transformed a small fruit and vegetable operation into a popular Atlantic Canada chain, said he's trying to hold off raising prices to deal with higher transport costs.

But "if it continues to go crazy, it has to happen sometime," he said.

Although customers say higher costs haven't shown up in a major way at the market, they expect the price shock to come soon. And when fruits and vegetables get too pricey, "I just won't buy them," said Halifax shopper Lynn Brooks,

A price crunch will force her and her neighbours to make tough choices in their shopping and eating patterns, she said, by using frozen vegetables or simply not buying items when the price skyrockets.

"When lettuce went up to over $2 a head last year, I didn't buy it unless it was a treat."

The rising food bill for others has meant cutting back on other areas.

Chris Lee, a construction worker in Vancouver, said he has to eat properly, so his social life suffers when food costs soar.

"More money on food means less cash on the weekends. I stay home more," he said. "I do drive to work and, yeah, after groceries and gas there's not much left for the weekend."

Facts about recent price increases:

Energy prices: Up 7.1 per cent in December 2002, compared with December 2001, according to Statistics Canada's consumer price index. In November, the increase was 14 per cent. In December, gasoline prices rose 20.8 per cent and fuel oil prices increased 17.2 per cent.

Gasoline prices: Canada's average regular gasoline price topped 82 cents a litre last week. In 2001, the low was 55.9 cents, the high 80.4 cents. In 2002, the Canadian average ranged from a low of 56.4 cents to a high of 75.5 cents, says research by MJ Ervin & Associates.

Food prices: In December, fresh vegetable prices soared five per cent, mainly due to a big jump in the cost of tomatoes and increased demand during the holidays.

Food prices rose on average 2.6 per cent in 2002 after a 4.5 per cent increase in 2001. The increases in 2002 were due to higher costs for fresh vegetables, especially potatoes, milk products, bakery products, beef and fresh fruit, says Statistics Canada.

Grain prices: Have been rising since the middle of last year after the drought in Canada, the United States and Australia caused grain stocks to drop substantially. In 2002, wheat prices rose by 12 per cent. When prices peaked in September 2002, they were up 49 per cent year-over-year, says Kenrick Jordan, a senior economist with BMO Financial Group, who tracks agriculture product prices.

BMO forecasts that these prices will continue to rise, up about 15 per cent this year.

Dairy prices: Higher feed and fuel prices have led to an increase in the price of dairy products. The Canadian Dairy Commission increased its support prices for milk producers, a price used to determine the price of fluid milk, so their return is expected to rise by 3.9 per cent to deal with higher costs. In 2001, the support price increased and was expected to increase the dairy farmers' return by 1.7 per cent.

Here are some comments from consumers about how higher gas, heating, and food prices are affecting them:

"I don't buy many packaged foods any more, like pre-made salad or fancy biscuits. It would be nice to, but on a fixed income you have to be very careful. And I live on my own, so everything is so expensive. It's a worry, so you just buy basics, milk and bread." - Beth Doe, a widow living on a pension in the west end of Vancouver.

"Well living downtown, rent is so much higher, so I do have to cut back on my groceries quite a bit. I share costs with my roommates, but it still seems horrendous. If I didn't work in a restaurant on the weekends how would I be able to afford this bag of groceries . . . this bag cost over $30. Yikes. How did it get to be that high? One bag?" - Lisa McIntyre, a student in Vancouver.

"Heating costs, I've noticed, especially with this winter. It's been brutal. But you just have to bite the bullet and hope it ends soon." - Sonia Haynes, an account manager with an insurance firm in Toronto, who says gas prices are "ghastly" but she's fortunate that most of those costs are covered by her company as part of her job.

www.canada.com MICHAEL TUTTON Canadian Press Saturday, February 22, 2003

(CP) - Dave Davis cringes in disgust as he pumps 90-cent-a-litre diesel into his truck, but he says without a regulator setting the price, he'd be even angrier.

"Being regulated at high prices is better than no regulation at all," says the small businessman, who runs a snow-clearing operation based in the Grand Falls-Windsor area of central Newfoundland. "Even a couple of cents on the litre adds up to a few hundred dollars," when you're running a fleet of snowplows that consume 6,000 litres a month, he adds.

Chalk up one convert for the pro-regulatory camp in the battle over who should control the price at the pump: government or the oil industry.

With fuel prices soaring across Canada in recent weeks, Davis said he's glad he lives in one of the two provinces that has defied the oil industry by setting up a commission to regulate prices. Prince Edward Island was the first to do so in the early 1990s.

The little-known regulatory bodies are at the centre of a fierce ideological debate that is spreading to other provinces.

The oil companies argue the system in Newfoundland so distorts the market it's creating fuel shortages and could lead to fewer gas stations.

On the other side of the debate is George Saunders, chairman of the 18-month-old Petroleum Products Pricing Commission in Newfoundland and Labrador.

Saunders says his commission has cut into the oil companies' excessive profit margins and has brought the province's fuel prices in line with the rest of Atlantic Canada.

"Last Tuesday, the price of gasoline in St. John's was 87.2 cents a litre, while in Moncton, New Brunswick it was 89.9 cents. That was unheard of in the old days," he said, clearly pleased.

Saunders, a former municipal politician and teacher, says he's hoped for co-operation from the industry, but finds his mere presence is infuriating the big companies.

"I think there is an inherent fear that if regulation works in Newfoundland other provinces will start to take a more serious view of it, and so they're going to use more serious strategies to do their best to get rid of us."

Newfoundland's pricing system has been drawing both interest and supporters over the past year.

"We even had a visit from the attorney general of Hawaii last year, and he was favourably impressed," Saunders said from his office in Grand Falls-Windsor.

In Nova Scotia, where prices for regular gas jumped seven cents on Wednesday, the Opposition NDP has demanded a return to the price-setting system the province had prior to deregulation in the early 1990s.

Meanwhile in Prince Edward Island, consumers have grown fond of having the Island Regulatory and Appeals Commission set prices, said Wayne MacQuarrie, a provincial employee who helped set up the province's system in 1991.

"The beauty of it is the system forces gradual change in prices," he said. "We don't see the dramatic increases and it smooths out the peaks and valleys."

The two provincial systems use formulas that are based on spot market prices in New York Harbour. Bureaucrats factor in the costs for transport and storage and the result is a set of fuel prices that are held steady for 30 days - the sudden dips and spikes that irk most Canadians are eliminated.

A nice theory, says the industry, but in practice the system doesn't work.

"When you look at value to the consumer, they're better served by a market that is competitive," said Bill Simpkins of the Canadian Petroleum Products Institute.

In early January, as international prices soared amid fears of a war in Iraq and civil unrest in Venezuela, small firms that provide fuel to remote Newfoundland towns were caught between the big oil companies and the provincial commission.

The unregulated price of the fuel from large terminals, which are controlled by the major oil companies, shot up to near record levels while the regulated prices at the pumps remained unchanged.

The result was some delivery companies refused to pick up loads of gasoline, creating shortages in outport towns around Bay D'Espoir, on the island's south shore, and in tiny Tilting, Nfld., a town on Fogo Island, about 300 kilometres north of St. John's.

Bill Roberts, manager of a convenience store and service station in Hermitage, Nfld., an isolated town on the province's south shore, said he was down to 1,000 litres of gasoline for a population of 800.

He isn't sure who to blame for the problem, but he wants it fixed.

"We almost ran out of fuel," he said. "It's a one-hour drive to the next town."

Saunders blames the oil companies, saying they're being unco-operative by raising prices rapidly between the monthly price reviews.

"Average the price out over a period of time, that's all we're asking them to do," he said.

Steve Ecclestone, Atlantic Canada manager of Ultramar Canada Ltd., which has operated in the region for 40 years, says you can't force a company to sell below international prices.

"From a financial standpoint that just doesn't hunt," he said. "You're not going to have any company willing to buy stuff and sell it at a loss."

Ultimately, said Ecclestone, companies will likely pull service stations out of the province if regulation becomes too heavy handed.

Some industry analysts also argue that, despite anecdotes and claims, overall prices aren't really improving in regulated provinces.

Calgary-based M.J. Ervin & Associates, which provides data to the oil industry and other clients, analysed prices in the two regulated markets and compared them with prices in the rest of Canada.

"While prices in Charlottetown and St. John's have been relatively stable, for the most part they have not been lower," said Cathy Hay, an analyst at the firm.

Some observers say a better way for governments to bring down oil prices is to reduce fuel taxes - which is over one-third of the total price.

On average, Canadian taxes have increased by seven cents a litre over the past decade.

In P.E.I. and Newfoundland, tax hikes have been among the highest in the country. In Newfoundland, for instance, the tax take per litre has climbed from 21.5 cents in 1991 to current levels of 32.9 cents a litre.

Fighting such hikes, rather than creating more regulation, would give consumers the best break, said David Bradley, president of the Ontario Trucking Association.

He's examined regulation, and concluded it would do little to help prices for his membership if introduced in Ontario.

"It's interesting that the jurisdictions in Canada that have this sort of system also have among the highest provincial taxes in fuel," he said.

"It seems to me if governments want to moderate the price of fuel, they should be looking at their own tax component of it first."

In central Newfoundland, where taxes are among the highest in the land, snowplow owner Davis says he'd appreciate anything that would lower prices.

But he'd still recommend other provinces consider bringing in an bureaucratic overseer to smooth out the price spikes.

"Even though you might feel the prices are too high, you wonder how high it would be without it," he said.