OIL AND GAS ROYALTY REVIEW - REALLY?
Why in heaven’s name is the NDP government determined to carry out a royalty review of our oil and gas producers? Why is this government hell bent on risking the wrath of globally structured companies that can make or break our province’s economy. We tried it before and the industry left town.
Some may be of the opinion that changing our province’s royalty charges is small potatoes and an Alberta-only business. The federal government does not collect royalties. Only provinces do. However, it is a matter of national interest, especially since organizations such as the Canada Pension Plan and the Quebec Pension Plan hold significant oil and gas stocks – principally in oilsands companies.
The problem for our provincial government is that 10 per cent of government revenues come from oil and gas royalties and financial forecasting of the royalty revenues have been based on oil prices at $US108 for 2014-15. The new government now needs to look at this revenue stream and decide what to do.
The last time this was attempted in any fundamental way, was when Premier Ed Stelmach was in office. He determined that a change in the formula was needed because the one in place had been developed when the price of oil was at $30 a barrel and it had now risen to more than $90 a barrel. His plan called for a sliding scale of royalties based on price changes and the elimination of a number of royalty exemptions. In the end, of course, the government intended to get an increase in revenue.
Now the situation has changed and oil prices are depressed. One can be assured that any change in royalties will follow the Stelmach formula but be adjusted to allow for an increase in provincial government revenues based on lower oil and gas prices.
What is missing in the current discussion, unfortunately, is the risk to our Heritage Trust Fund. Any increase in royalty revenue may well be overtaken by a loss in revenue to our provincial savings plan.
More disturbing is the lack of consideration of an overall policy framework such as the short-lived initiative championed by our sadly departed Premier Allison Redford. Our oil and gas industry is a North American complex. The determination to try to counterbalance this by increasing our revenue by selling to offshore countries is a positive idea. But it accounts for only two per cent of the industry’s revenue and is a long-term project so long as we have a Harper government.
Allison was right. We need a national energy policy. It is within this policy framework that we can plan sensibly for the future of the industry. Let us not forget, in this frantic rush to focus on the evils of fossil fuels, that some 6,000 products are made from petroleum – including golf balls, house paint, refrigerants and Aspirin. No one in his or her right mind would sensibly propose that we abandon oil and gas production.
Our premier might better spend her time, energy, and our money on picking up where Allison so tragically left off. Let’s reignite a National Energy Policy and support our petroleum industry rather than demonizing it, as is the Obama and CBC flavour of the day.
Alan Murdock is a local pediatrician.
