Prime Minister Stephen Harper must be having second thoughts about his approach to the sale of Canada's oil resources, given the huge drop from $108 per barrel to $50 per barrel.
Harper admitted that the low price would cause Canadians some pain but stated that he was confident that the oil industry would recover.Harper never talks about Canada's lost opportunity with regard to the royalties it collects from crude oil nor does he mention the subsidy that Canada pays the oil companies.
When compared with Norway, an oil-rich country with a population similar to Canada's, the country has lost a huge amount of revenue because of its soft approach to royalties. Norway took a tougher approach and is now reported to have a sovereign wealth fund of approximately $1 trillion. Norway has no public debt, its social programs are fully funded and there is enough money in its coffers to finance a transition to a new economy. Meanwhile Canada is fearful of running a deficit budget in 2015 and struggles to pay down a huge debt of well over $600 billion.
The province of Alberta will likely feel the pain of low crude oil prices more than other provinces. It is estimated that some 28 billion barrels of oil have been taken out of the tar sands but the province hasn't put billions in the bank. In fact the province is $12 billion in debt and will likely run debt of $500 million 2014/15, the seventh consecutive year it has done so.
Alberta cannot boast of having a fund similar to Norway's. The province has a similar sized population but its government took a laissez-faire approach during negotiations while Norway negotiated hard. The difference: Alberta was paid $4.04 per barrel in royalties in 2012 while Norway got $46.29 per barrel. If the bitumen from the tar sands is ignored, Alberta produced 18 per cent more oil and natural gas than Norway and they did it on land. Norway's oil comes from drilling rigs in the North Sea.
In a Tyee column titled Alberta's Crazy Oil Bender is Over, published on Jan. 19, Michael Anderson states, "For now the latest Alberta bender is over and it's time to take stock of certain destructive lifestyle choices. The budgetary cupboards are bare, yet Canada's ‘richest’ province has an unfunded municipal infrastructure deficit of up to $24 billion. A badly needed new cancer treatment facility has just been delayed past 2020. The long-overdue plan to build or modernize over 230 schools by 2018 is threatened by an $11 billion ‘fiscal hole’ in provincial finances."
Anderson believes the province is in for some difficult times. He states, "Albertans are in for a rough ride, but the first step to recovery is admitting you have a problem. Now that the bender's over, it's time to have that conversation."
For many years Albertans have enjoyed the lowest overall tax system in Canada, the lowest fuel taxes, no health premiums, no payroll taxes, no sales tax, no health premiums, no capital or payroll taxes, and low personal and corporate income taxes.
Canada and Alberta missed an opportunity to put money in the bank with its approach to its non-renewable resources. After a visit to Norway to determine how the country handled the situation Anderson states, "Canada is one of the cheapest places in the world for Big Oil to do business."
Andrew Nikiforuk, a columnist for The Tyee who has written about the fossil fuel industry for over 20 years states, “Oil, and especially bitumen, is a highly risky commodity to base a national economy upon, given its price volatility, detriments to currency value and other sectors of the economy, and power to distort democracy."
Imagine what Canada might be like had the federal government handled oil revenues in the same way Norway did.