This summer we’ve all been feeling the effects of inflation. The price of almost everything has risen dramatically, but the issue that I’ve been hearing a lot about is the cost of gas.
In January, the world oil price was about $70 per barrel, up significantly from its early pandemic lows. Then in late February, Russia invaded Ukraine, causing the oil price to spike to $120 per barrel. It remained at high levels until June, then declined steadily over the summer and is now in the $80 to $90 per barrel range.
We saw the effects of those high oil prices right away at the pumps. Gas jumped to over $2 per litre, peaking locally at around $2.15, an increase of about 85 cents per litre over prices before the Ukraine conflict began. Now, we’ve seen oil prices of over $100 per barrel before—that was the situation for several years from 2011 through 2014. But gas prices then didn’t get much above $1.30 per litre.
So what has changed? We had a carbon tax back then, so not much of a difference there—only a few cents per litre. The difference seems to be greed. Oil companies have made record profits this year. Worldwide, the top five oil companies reported profits of $35 billion in the first quarter of 2022, most of that in March and April alone; about four times what they made in the same period last year. In Canada, every oil company made more money than they ever had in that first quarter—Cenovus at $1.6 billion, Imperial Oil at $1.17 billion, Canadian Natural Resources at $3 billion, and Suncor at $2.95 billion.
Consumers naturally have been asking governments for relief. British Columbia has taken advantage of the new financial health of ICBC to send every motorist a $110 rebate cheque. Alberta removed its 13 cents per litre provincial gas tax, and while that seemed to work for a few weeks it appears that gas retailers fairly quickly adjusted the prices upward so that Alberta motorists were paying even more than those in Ontario by late July.
What the federal NDP has proposed is a windfall profits tax for oil companies. The UK has done this, implementing a 25% energy profits levy that will raise 5 billion UK pounds (almost $8 billion) each year to be used to help those facing soaring energy bills. In Canada we could use this to boost programs that help those that need it the most, including doubling the GST rebate and adding $500 to the Canada Child Benefit.
The other effect the Ukraine conflict has on world energy markets is the increased demand for natural gas as Russia threatens to cut supplies to Europe and especially Germany. There has been much discussion about how Canada should step in and help with its abundant supplies, but it is clear that we could not do that in time to alleviate the situation before winter.
What Germany has asked for is help in the mid- and long-term with its goals to use more green hydrogen—hydrogen made using renewable energy—in its heavy industry and heavy transportation sectors. This has been their plan for years—I remember attending a G20 energy meeting in Argentina in 2018 where the German energy minister asked for just that. He outlined a plan to buy renewable energy from other countries with abundant supplies and transport it to Germany in the form of ammonia.
Canada has huge potential for renewable energy, whether it is wind, solar, tidal or geothermal. We could continue to be an energy superpower as the fossil fuel industry phases out over the coming decades. The agreement Canada signed with Germany to supply green hydrogen from Newfoundland and Labrador is perhaps just a symbolic step, but it is an important signal of where we could and should go in the future.