Thursday, May 03, 2018

Governments' Fossil Fuel Windfall is Flagging - Nikiforuk Again, Of Course

To hear Justin Trudeau tell it, Canada's fossil fuels are the key to our prosperity. The Tyee's Andrew Nikiforuk says that's pure bullshit.

A comprehensive report on Canada’s energy sector says the nation’s remaining fossil fuels “are being sold off in an environment of low prices with minimal and declining returns to governments.”
More than 30 years ago many Canadian governments earned substantial income from oil and gas production primarily through royalties or taxes, but that is no longer the case, says the report. 
Royalty revenue from hydrocarbon production has plummeted 63 per cent since 2000, and corporate taxes earned by government on drilling and refining activity have declined more than 50 per cent. 
Canada’s Energy Outlook, researched and written by earth scientist David Hughes, one of the nation’s foremost energy experts, takes a hard look at Canada’s energy production, emissions, low carbon alternatives and resource-based revenue over time.
...Royalty revenue, usually a percentage of bitumen or gas production, has declined by 63 per cent since 2000, despite national oil production growth of 75 per cent and combined oil and gas production growth of 27 per cent. 
“Canada’s non-renewable energy resources are clearly being sold off for ever-decreasing benefit,” Hughes said.
...Alberta, Canada’s premier petro state and largest oil extractor, has led the way in earning less and less for the owners of the resource. 
While oil and gas production has doubled in Alberta since 1980 primarily due to expansions in the oil sands, revenue from royalties has plummeted from an 80 per cent share of government revenue in 1979 to an estimated 3.3 per cent in 2016, reported Hughes.
...“The oft-cited claim that growing oil and gas production is vital to Canada’s economic well-being and its ability to protect the environment has become progressively less true over the past decade,” the report said. 
British Columbia, Canada’s second largest miner of natural gas, has also experienced declining royalties. 
While gas production has doubled in northeastern B.C. since 2005, royalty and other non-renewable resource revenue “has declined by 84 per cent, such that it was only one per cent of government revenue in 2017.”
...The evidence suggests a mature and shrinking industry now dependent on the extraction of lower quality and energy intensive resources such as bitumen and unconventional shale gas.
The case for keeping it in the ground.
Hughes, whose work has been cited in the Economist, Bloomberg and Canadian Business, says the evidence paints a consistent pattern: “In short, Canada’s remaining non-renewable energy resources are being sold off in an environment of low prices with minimal and declining returns to governments.”
The report concludes that politicians don’t understand that the nature of oil and gas production “is to high-grade the most economic resources first and leave the lower-quality, higher-emissions and higher-environmental-impact resources for last.” 
Given that nobody knows how successful a transition to renewable energy will be (renewables are now three per cent of the nation’s energy supply), Hughes argues that Canada’s oil and gas resources remain a valuable backstop “should renewable sources prove to be insufficient.” 
“Selling off the best of Canada’s remaining non-renewable resources at low prices, with minimal and declining returns to the public, compromises future energy security.”
I've been struggling to make sense of Justin's fossil fuel fetish. He's tried to sell it as a grand compromise with Alberta to win acceptance of his carbon pricing plan.

I read an opinion piece at CBC Calgary's web site yesterday suggesting that Notley's trailing so far in the polls that her only hope of saving the NDP's skin in the upcoming election is to renege on her carbon tax promises and the sooner the better. Add that to Jason Kenney's vow to tell Trudeau to put his carbon tax up his arse and Justin's pipeline obsession doesn't make sense.  He's plainly after something but he's not saying what that is.

Reader Cap came up with an explanation that makes a lot of sense.
I strongly suspect that Trudeau's main concern is the banks. In the last few years, foreign oil companies, including Statoil, Shell and Marathon, have sold off their tar sands operations worth billions.

The buyers were largely Canadian companies financed by Canadian banks. Completing the pipeline is necessary to maintain the illusion that there are Asian buyers waiting for those operations to come on line.

Imperial Oil, ConocoPhillips and Exxon Mobil have already admitted that their tar sands holdings cannot be profitably developed and have taken billions of barrels of write-downs to their bitumen reserves. The Canadian banks are looking at a severe haircut if investors come to the same conclusion as the oil giants.

The last thing Trudeau wants before the next election is a recession driven by a collapsing bitumen bubble. So he's stalling, hoping to postpone the inevitable economic and political consequences. The world his own children will inhabit appears to take a back seat to his political future. This is truly the "banality of evil" that Hannah Arendt observed at the Eichmann trial.
I've always been puzzled by what the Libs get out of supporting KM. Albertans are conditioned from birth to hate Libs, so it's not like they can trade off votes in BC for ones in AB. Plus, the party's base is in eastern and central Canada. It mainly serves the interests of the Laurentian elites, the most prominent of which are the bankers. I could be wildly off, but this is the only explanation that made sense to me.



Owen Gray said...

The oil companies don't want to be stuck with stranded assets. They'll be off the hook, if the federal government picks up the bill.

Anonymous said...

Owen, that could run to over a trillion dollars once you add in the clean-up and remediation costs the oil companies also want to skip out on and which the Alberta government won't be able to cover.

I don't think the feds are able to cover everything. Oil companies will go bankrupt and lenders will see their loans worth pennies on the dollar. The government will protect the banks, but the social costs in Alberta will be huge. Some economists see this happening in the next decade or so as electric vehicles become the norm.

So now it's musical chairs - nobody wants to be the PM or premier in power when the music stops, and they're willing to slip the DJ some money to keep it going. Instead they should stop the game now and deal with the problems. Humanity doesn't have time for silly political games.