Alberta has a revenue problem and a pipeline problem.

Photo of the Keystone XL Pipeline protest on February 17, 2013 in San Francisco (photo by Steve Rhodes - CC BY-NC-ND 2.0)
From the Keystone XL Pipeline protest on February 17, 2013 in San Francisco (photo by Steve Rhodes – CC BY-NC-ND 2.0)

One month ago, Premier Alison Redford took to the airwaves to warn Albertans about the revenue problem, or ‘bitumen bubble‘, the government will face in the 2013 provincial budget. The Premier cited the lack of pipelines pumping bitumen from our oilsands to external markets as a reason for the low price of Alberta oil and her government’s lack of resource revenues. Alberta had a revenue problem.

Premier Alison Redford
Premier Alison Redford

For the first time in recent memory, Alberta’s revenue problem was at the top of political discourse in our province. The government held a symposium to hear from experts about Alberta’s fiscal framework, but at the same time ruled out the return of health premiums and denied any rumours of a provincial sales tax (which, in fairness, would have been as popular as introducing rats into the province).

Two reasonable solutions that did not get enough attention were to increase the revenues from natural resources and to replace the Klein-era ‘flat-tax’ with a progressive taxation system that could collect more revenue without penalizing low- and middle-income Albertans.

It is hard not to point out that the group of individuals currently in a position to solve this problem are also the architects of our government’s short-sighted fiscal planning: Alberta’s Progressive Conservatives.

But late last week, before the Premier flew to the United States in a last ditch attempt to lobby politicians to approve the TransCanada Keystone XL Pipeline, she turned her government’s spin machine in a new direction, claiming Alberta now has a “spending problem.”

It is likely this is still part of the ongoing public relations campaign to manage Albertans expectations before the March 7 provincial budget.

Now let us shift to the pipeline debate and what the Premer says is the source of our (now former?) revenue problem: Alberta’s pipeline problem.

BC NDP leader Adrian Dix
Adrian Dix (photo from @taminator on Flickr)

After years of campaigns targeting Alberta’s tarsands as a major contributor to climate change, our oilsands are an easy political target for opponents of two major pipelines. Large protests across the United States last week have put the future of the Keystone XL Pipeline in question and a near political consensus in British Columbia against the Enbridge Northern Gateway Pipeline suggests a pipeline through that province is unlikely to be built anytime in the near future.

Both Liberal Premier Christy Clark and NDP leader Adrian Dix have adopted positions against the Northern Gateway Pipeline project in advance of the May 14, 2013 elections. A recent poll from Angus-Reid shows the BC NDP with 47% support compared to 31% for the BC Liberals.

Premier Redford’s cause is not without political allies south of the border. The Keystone XL Pipeline has the support of a dozen United States Governors and TransCanada claims the southern section of the pipeline, through Texas and Oklahoma, is already half-complete.

Many critics of the Keystone XL pipeline have focused on climate change, raised legitimate concerns about the devastating environmental impact of pipelines leaks, and poked holes in the number of jobs pipeline proponents have promised to create.

Even notorious Australian-American news media owner Rupert Murdoch railed against the pipeline on Twitter.

Representing more than eleven million American workers, the AFL-CIO President Richard Trumka is backing the pipeline, pitting the labour movement against environmental groups, like the Sierra Club (executive director Michael Brune was arrested at last week’s protests).

It has been speculated that having these two large and influential constituent groups on opposite sides of this debate could make it increasingly difficult for President Barack Obama to approve the pipeline’s construction over the American border with Canada.

9 thoughts on “Alberta has a revenue problem and a pipeline problem.”

  1. Alberta has a propaganda problem.

    As in “elephant in the room,” but who would want to risk the Stelmach cement boots treatment from the Calgary head office/Big Oil crew?

    MSM pundits and political pundits of the centre and right, are right at the top of the propaganda problem.

    Notice the convergence of traditional conservative views and current labor union views … see below re Allan Warrack ID’s AB as a banana republic re the tar/bitumen/oil sands royalty giveaway, the boondoggle at the root of all AB budget issues…

    and Labor points out the same:

    http://www.betterwayalberta.ca/the-status-quo/the-real-problem-tax-and-royalty-giveaways

    http://www.betterwayalberta.ca/images/stories/charts/BWA_chart_govt-share-total-mv-combined-oil-gas.jpg

    Allan Warrack here:

    http://thetyee.ca/Opinion/2011/04/13/HarpersBigQuestion/

    excerpt: ” Alberta’s Oil Wealth and the Big Question for Harper

    PM’s favourite province squandered its petro profits like a ‘banana republic.’ Is this any way to run an economy?”

    excerpt: “Warrack, one of the architects of the iconic Alberta Heritage Fund, told the Tyee earlier this year that the province is being run like a “banana republic” for failing to collect fair rents for non-renewable resources like the oil sands.

    Warrack is a professor emeritus of business economics at the University of Alberta and former minister of lands and forests in then-premier Peter Lougheed’s cabinet in the early 1970s. Warrack then served as utilities minister and on the energy cabinet committee. He also authored a detailed history on the Heritage Savings Trust Fund and was a key player when the province famously revamped the royalty regime and set up the arm’s length oil wealth fund to benefit future generations.

    “Since time immemorial, the use of other people’s property has been on a two thirds, one third split,” said Warrack. “The owner gets a third and the operator gets two thirds… If you interpret that in terms of oil or natural gas or oil sands, there should be a third of the value to the owners and in the case of oil sands that is 100 per cent owned by the public.”

    The royalty rate collected on oil sands projects before “payout” is currently one per cent, which according to Warrack is so low it is “like a rounding error from zero.”

    more here:
    http://www.betterwayalberta.ca/
    http://www.betterwayalberta.ca/the-status-quo/spending-is-not-the-problem

  2. Was it Redford or somebody that said something like: when people move to AB for jobs in the oil industry, they don’t bring their schools, hospitals and roads with them…?

    my take…Unless AB collects an owner’s share of revenue on our natural non-renewable resources, we’ll continue to slide toward living somewhat toward the homeless end of the spectrum vs the head office/executive class in Calgary with their retirement castles in B.C. interior, as in that petro-class being the source of the “Alberta-stan” screech and the funding of wildrosie politics, as in the AB-style let them eat cake mentality that wields effective political control over us serfs.

    Just sayin’.

    Sam Gunsch

  3. I have a feeling Alberta’s oil woes may be short-lived. In the last little while I’ve been hearing about how the natural gas and oil reserves in the US have been vastly inflated and this “fracking boom” is just another one of Wall Street’s bubbles.

  4. Does anyone else find it hilarious that the protestor in the photo has spelled “Keystone XL” incorrectly?

  5. I’ve been wondering for a while about the use of “bubble” concerning bitumen, and I’m hoping someone can clear this up…

    Most “bubbles”, in economic parlance, involve the inflation of prices beyond the real value of the item or commodity in question. Usually this happens consequent to speculation by investors.

    For recent example, of course, we have the “housing bubble” in the US. And then the “bubble” bursts, and prices adjust. Those who bought into the hyperbole tend to suffer losses.

    So, in what sense does Premier Alison Redford see the current malaise affecting Alberta’s oil as a “bubble”? Does she think the product is overvalued? Or are she and her advisors economically illiterate?

  6. Martin I’ve been thinking the same thing since this non-sensical term entered Alberta’s political parlance. There’s no bubble, as you rightly point out.

    If we’re doing an alliteration thing, maybe we can try the petroleum price problem Or the oil oops. Or the

    I feel like they just picked it cause, you know, same letter.

  7. I’ve been writing about Alberta’s pending revenue issues with oilsands for awhile now and no ronmac it will not be short lived.

    Hre is my latest, deflating the pillars of Canadian economic mythology: http://canadiantrends.blogspot.ca/2013/02/deflating-pillars-of-canadian-economic.html

    Alberta’s issue is not one of taxes, or revenue, or even royalties. The oilsands producers themselves are taking losses also, layoffs are occuring.

    Alberta’s problem is that our extreme energy solutions have extremely low energy returned on energy invested ratio’s (EROEI). The oilsands have a 3:1 ratio while conventional oil has around 200:1.

    Alberta’s “spending problem” derives from the fact that the investment and overhead needed for oilsands deveopment outweighs the return we get from them.

    Let me visualize this for you, you know how Alberta says it has “billions” of barrels of oil? Well with a 3:1 ratio 1 billion barrels turns into 666 million and that’s before you include the capital required for maintaining the environment or to provide schooling and healthcare to all of the workers we rush into Alberta.

    We didn’t notice this up until the 2008 collapse because up until then oil price had been growing exponentially which allowed Alberta to sell it’s bitumen at a higher price than what it ws going for when it was extracted. Alberta’s entire business model was based on the differential between the extraction price and the sale price, but now that the oil price is bi-directional all of our magic profit has disappeared.

    More on these topics on my blog: canadiantrends.blogspot.ca

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