New report, old excuses
The Parkland Institute released its latest report yesterday morning, detailing the huge scale of oilpatch profits â€“ Misplaced Generosity: Extraordinary profits in Albertaâ€™s oil and gas industry.
Many of the responses from government and industry were predictable â€“ thatâ€™s why they were addressed in the report.
Letâ€™s run through the standard excuses offered for the string of royalty cuts Albertans have watched their government hand out over the last two years.
1. JOBS â€“ see p. 23 of Misplaced Generosity
The governmentâ€™s own models tell us that a dollar invested in health care creates seven times as many jobs as a dollar invested in oil and gas extraction. A dollar for education creates five times as many jobs as the oilpatch.
The government breaks down Albertaâ€™s economy into 60 sectors â€“ oil and gas finishes dead last in job creation per dollar invested.
If the Progressive Conservatives were sincere in their desire to keep Albertans working, they would invest in what citizens regularly point to as priorities: health care and education.
2. FLEEING INVESTMENT â€“ see pp. 21-22 of Misplaced Generosity
Albertans have been told a thousand times that the higher royalties announced in 2007 have cost the province billions in lost investment. But talk is cheap and the facts say otherwise.
Despite a major recession taking hold at the end of 2008, oilpatch investment remained at 2007 levels after the announcement of royalty increases.
Land sales, an indication of future investment, actually increased 30% in 2008 after higher royalties were announced.
If industry was pulling billions in investment, why would it increase its purchase of exploration rights for future development?
So investment continued apace after the announcement of higher of royalties in 2007 and showed no sign of decreasing before the recession took hold in 2009.
Much of the rest of what the industry and government have to say about decreased activity in the oilpatch conveniently ignores the â€˜Great Recessionâ€™.
The serious downturn began in late 2008; oil prices fell by a third and natural gas prices were cut in half in 2009.
The governmentâ€™s own Competitiveness Review attributed the decline in oilpatch activity to two factors: the Great Recession and the â€˜game changingâ€™ nature of shale gas, which had been undermining natural gas prices since before 2007.
Albertans should be very skeptical of anyone trying to pretend higher royalties are to blame for the effect of the â€˜Great Recessionâ€™ and shale gas.
3. HIGHER COSTS? â€“ see p. 21 of Misplaced Generosity
Another major justification for handing royalty cuts to an already wildly profitable industry has been the claim that Alberta is just too expensive.
Both the Stelmach governmentâ€™s March 2010 Energizing Investment report and the competitiveness committeeâ€™s report claimed Alberta had higher costs than the United States.
However, the technical study on which their claims were based concluded exactly the opposite. Buried nearly a hundred pages deep in the technical appendices is the conclusion: The lower technical complexity of Albertaâ€™s wells makes them 26-per-cent cheaper than those in the United States.
The 2010 competitiveness study further concedes that Alberta enjoys cost advantages when compared with British Columbia and Saskatchewan because of the size of our industry and our more established and extensive infrastructure.
Albertans should ignore self-serving arguments from government and industry and take the time to read the report for themselves and come to their own conclusions.
Regan Boychuk is the public policy research manager for the University of Alberta’s Parkland Institute, a non-partisan research centre studying economic, social, cultural and political issues facing Albertans and Canadians from the perspective of political economy.