Monday, January 19, 2015

We Don' Need No Steenking Pipelines

Fourth Time Lucky?

All is not well up Alberta's Athabasca poop chute.  The Tyee's Mitchell Anderson writes that the Wild Rose hangover is just setting in.

So what does Alberta have to show for some 24 billion barrels of conventional crude and bitumen that have so far come out of the ground? The province is currently over $12 billion in debt and is projected to run a budget deficit of $500 million this year, the seventh consecutive year in the red for a province that prides itself on having a sharp fiscal pencil.

Resource prices often go through boom and bust cycles, and this is certainly not the first in Alberta, as evidenced by a certain iconic bumper sticker. Yet to fully grasp Canada's colossal lost opportunity, we need to look toward our Norwegian neighbours.

Norway, like Canada, was scaling up its petroleum industry in the early 1970s. It endured the same cyclical rides in resource pricing, and negotiated terms with many of the same foreign companies.

Yet Norway now has over $1 trillion socked away in its sovereign wealth fund, a dedicated repository of all petroleum revenues. Even if oil was worth nothing tomorrow, the country would still have no public debt, fully funded social programs that we can only dream of, and a very large nest egg to transition to a new economy.

So where is our nest egg? The Alberta Heritage Fund was started almost 15 years before the Norwegian oil fund, yet the province has not contributed a dime of resource revenues since 1987. This moribund fund has only two per cent of the value of Norway's pile of cash, which is now the largest sovereign wealth fund in the world.

The difference is what Alberta had that Norway didn't have.  The Norwegians didn't have Ralph Klein.  They didn't have Ed "Special Ed" Stelmach.  They didn't have Alison Redford and they sure as hell didn't have Sideshow Steve Harper or Joe Oliver.  They also were spared the sophomoric and ultimately self-destructive ideology these morons inflict on all and sundry in their rush to maximize bitumen extraction at any cost.

The laissez-faire approach to resource management in Alberta has been a fiscal disaster compared to what might have been. In 2012, the province collected a mere $4.04 in royalties per barrel of oil equivalent. That same year, the Norwegian taxpayer raked in $46.29 on their petroleum production -- more than 10 times as much. How did they achieve such vastly better results? By embracing a profitable public involvement and oversight in their resource economy that would be abhorrent to the Fraser Institute worldview that has taken root in Alberta.

While it is true that Norway's Brent crude is worth much more than the low-grade bitumen currently wrung out of the oilsands, Alberta has also produced enormous amounts of conventional crude since oil was discovered in the Turner Valley southwest of Calgary 100 years ago.

Ignoring the oilsands altogether, Alberta has produced 18 per cent more conventional crude and natural gas than has Norway, and the province didn't have to venture hundreds of kilometres into the North Sea to get it

Anderson sees a glimmer of hope in the recent election of Jim Prentice to become the province's premier.  He thinks Prentice might just be the first sane Alberta politician to come along since Peter Lougheed.  Maybe, we'll see.

Remember, these are the same people who are telling the people of British Columbia to stand aside and let them run hazmat pipelines across our province so that armadas of supertankers can ply our pristine but treacherous coast.  I don't think so.


Unknown said...

Out here in BC our economy will be hurt worse than Alberta that being said it is because many in BC used to work in the Alberta bitumen industry. They all thought they had large peckers and drove the biggest pick-up money could buy they were rich. Well the first shock has already come sales of fancy pick-up trucks in BC have fallen through the floor.

And the only way Prentice is gonna save Alberta? Tax the living shit out of oil/bitumen extraction companies ain't gonna happen they are on a downward spiral since Ralph the drunk weather man Klein took the reins of power in Alberta. He was a weather man for I believe it was channel 4 CFCN then he became mayor of Calgary and used that platform to jump to premier of Alberta. He privatized most all government services like Harper is doing now to try and bring in a surplus. You could find Ralph at bar at the downtown Cecil Hotel almost 24/7 and these are leaders?

The Mound of Sound said...

I thought it was the St.Louis hotel. I think the Cecil is a grimy former peeler bar on south Granville.

Unknown said...

Yes Mound you are correct it was the St.Louis the Cecil hotel was in the same east side Calgary where most hopeless people and a ton of hookers were. Since Calgary has made a make over of its east side giving away those old hotels and letting developers put in expensive condo's. But there was a Cecil Hotel there too. [it was also slimy]

Troy said...

I'd read an article, recently, lamenting the state of North American, er... 'unconventional oil'.
Basically, these companies can't afford to keep extracting so much fossil fuels, but can't afford to shut down any wells. Therefore, they're surviving on loans.
Saudi Arabia has done has huge blow to these companies, and we'll probably end up picking up the tab come this Spring when the loans get called in.
These tar sand companies, and fracking companies probably won't pay the price, and the banks won't pay the price. It'll probably be the taxpayers bailing out these jerks, again (in addition to the subsidies that are vitally needed to even keep these industries barely profitable).
And no major group has really advanced any sort of policy to prepare the economy for this sort of recession. I'm guessing we'll probably see another TARP if this gets really bad, like 2009. And then we'll ride that until the next recession.

The Mound of Sound said...

Thanks for the link, Troy. As I read the Fiscal Times article I was struck by this line - "Twenty percent of the Royal Bank of Canada’s investment banking book is in energy loans, for example; for Wells Fargo it’s around 15 percent. The longer the slump, the more corrosion in those loan books."

It brought home the warning by Bank of England governor, Mark Carney, that the financial sector, especially banks and the stock markets, were in grave danger from oil company reserves, recognized at face value, that are likely to become worthless 'stranded assets' as we come to accept that 80% of already booked fossil fuel reserves will have to be abandoned, left in the ground, if we're to have a hope of limiting global warming to 2C.

Carney was speaking of fossil fuels generally but his remarks were most pertinent to high-cost/high-carbon assets such as bitumen.

After this slump, assuming it ends at some point, it will be interesting to see if investment dollars really return to Athabasca.

Anonymous said...

Canadians need to demand our government wave the finger for 80% royalties rather than 20%. Norway shook its finger at Exxon and said...we get 80%, you get 20%, take it or leave it. That is why Norway is in the position it is. They have not sold their country down the drain. Canada recently sold a chunk to Mexico...any one Canadian know about that? Anyong

The Mound of Sound said...

We're in no position to demand a major royalty increase today, Anyong. That horse left the barn some time ago and it's never coming back. If anything I expect Alberta and Ottawa to be squeezed for additional subsidies, deferrals and grants to partly offset the energy companies' exposure on bitumen.