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Raising royalty rates carries risks for Alberta, Canada


  |  Posted: Saturday, Mar 16, 2013 06:00 am

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I always read Sharon Ryan's regular column with interest. Her recent column comparing Norway to Canada vis-a-vis energy requires a response.

After spending 35 years in Alberta energy (power generation and oilsands) and having extended family in Norway's energy industry, I can say this: Comparing Canada to Norway is rather apples and pumpkins and here's why:

Norway's population is only one-seventh of Canada’s (five million versus 35 million). Norway’s land mass is a small fraction of Canada’s (385,000 square kilometres versus 9.9 million).

Norway's energy industry is largely government-controlled from extraction to marketing. It is not a member of OPEC. StatOil, its energy company, does contract other players, but overall it’s a government decision. Canada's oil energy industry is investor capitalized and operated, from large to small investors. In the oilsands, the Canada Pension Plan is one of the largest investors, along with thousands of mom and pop portfolios.

Norway's electrical energy is 98 per cent hydroelectric produced, highest in the world for its five million citizens.

Canada's conventional oil is in decline overall, and its oilsands energy extraction costs up to six times the cost of Norway’s offshore oil, itself in decline. The first oilsands company took 12 years to make a small profit considering the huge capital cost of mining and extracting and the specialized cost of refineries. Oilsands companies spend more than $6 billion in other provinces for parts and tools and transportation, etc., Ontario being the largest recipient, followed by Quebec.

A recent estimate showed that to produce one barrel of Athabasca crude oil now costs more than $40. It is labour intensive. Norway’s oil, like all offshore oil, is simply pumped from its deep-sea reservoirs to onshore tankage, even if its offshore work is very risky. Recent labour estimates across Canada say that more than 280,000 people are directly or indirectly involved in supply, service and operation to our huge oilsands industry. Everybody profits.

Finally, perhaps more important than all is that Alberta is part of Canada's Confederation and is bound by its Constitution. That obligates Alberta to contribute to the equalization portion of its GDP via its federal balance of payments. Government estimates show that in the last eight years Alberta has contributed more than $100 billion to the equalization kitty run by Ottawa.

Both Quebec and Ontario, as have-not provinces, are the main recipients of this largesse coming from the sweat of Albertans. Had Alberta been an independent nation, can you imagine what $100 billion at three per cent would have created? But we don’t complain. We are all Canadians, said Stompin' Tom Connors.

So, Ms Ryan, Alberta's choice is this: develop its labour-intensive, costly, oil industry as it has for 45 years (oilsands) and 65 years (conventional oil) and spread the wealth across Canada, or increase the royalties and see the shareholders vanish to other lucrative commodity markets.

Bert MacKay, St Albert


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