'The Tories chose to pretend the big blunder did not happen,'
The Alberta government has failed to collect nearly $2.5 billion per year in resource royalties since 2009 due to a major calculation blunder, according to Jim Roy, a private royalty expert who advises governments around the world.
As a consequence, the province has failed to collect $13 billion in the last five years, charges Roy, a former senior advisor for royalty policy for Alberta Energy.
That's not what Alberta's long-reigning government promised to voters in 2007.
After a controversial royalty review, the first one in a decade, premier Ed Stelmach told Albertans that the new formulas for calculating royalties would increase Alberta's ''fair share'' of hydrocarbon profits by $2 billion a year, beginning in 2009.
At the time Jim Prentice, then federal industry minister, supported the changes proposed by Stelmach.
But instead of increasing royalties by $2 billion a year, Alberta's ''fair share'' plummeted due to bad forecasting and major flaws in how the province collects natural gas and bitumen royalties, Roy said.
''Announcing a royalty increase and delivering a royalty decrease is difficult to explain to voters,'' Roy said. ''The Tories chose to pretend the big blunder did not happen. Nobody talks much about the government gifting the petroleum industry $13 billion.''
The management of Alberta's hydrocarbon income has become a significant election issue as the Tory government has posted a $5-billion deficit and raised taxes and cut services for ordinary Albertans.
Since 2009, natural gas revenue for the government has experienced the greatest losses. The new formula implemented in 2009 made the royalty rate much more sensitive to price, and the new formula substantially dropped royalties for unconventional resources such as shale gas.
''The government expected natural gas prices to rise, but instead they collapsed,'' Roy said. ''As a result, government earnings from natural gas dropped by $5 billion after 2009.''
Alberta has a low royalty rate for bitumen compared to rates in countries that have similar heavy oil resources. Alberta, for example, takes from 25 to 40 per cent of profit, equivalent to 10 per cent of gross revenue. In contrast, Venezuela, which also extracts heavy oil, takes 40 per cent of gross revenue -- four times as much as Alberta.
Saudi Arabia captures 85 per cent of profits from its oil fields, while Norway takes 80 per cent of profit -- both three times as much as Alberta, Roy said. ''Newfoundland/Hibernia takes 30 to 50 per cent of profit, plus 7.5 per cent of gross revenue or twice as much as Alberta.''
The royalty expert also argues that the province has failed to control the pace of bitumen development. As a result, industry has put too much bitumen on the market and that glut, in turn, has played a role in driving down global prices.
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Royalty Miscalculation Cost Alberta Billions, Expert Says | The Tyee
The Alberta government has failed to collect nearly $2.5 billion per year in resource royalties since 2009 due to a major calculation blunder, according to Jim Roy, a private royalty expert who advises governments around the world.
As a consequence, the province has failed to collect $13 billion in the last five years, charges Roy, a former senior advisor for royalty policy for Alberta Energy.
That's not what Alberta's long-reigning government promised to voters in 2007.
After a controversial royalty review, the first one in a decade, premier Ed Stelmach told Albertans that the new formulas for calculating royalties would increase Alberta's ''fair share'' of hydrocarbon profits by $2 billion a year, beginning in 2009.
At the time Jim Prentice, then federal industry minister, supported the changes proposed by Stelmach.
But instead of increasing royalties by $2 billion a year, Alberta's ''fair share'' plummeted due to bad forecasting and major flaws in how the province collects natural gas and bitumen royalties, Roy said.
''Announcing a royalty increase and delivering a royalty decrease is difficult to explain to voters,'' Roy said. ''The Tories chose to pretend the big blunder did not happen. Nobody talks much about the government gifting the petroleum industry $13 billion.''
The management of Alberta's hydrocarbon income has become a significant election issue as the Tory government has posted a $5-billion deficit and raised taxes and cut services for ordinary Albertans.
Since 2009, natural gas revenue for the government has experienced the greatest losses. The new formula implemented in 2009 made the royalty rate much more sensitive to price, and the new formula substantially dropped royalties for unconventional resources such as shale gas.
''The government expected natural gas prices to rise, but instead they collapsed,'' Roy said. ''As a result, government earnings from natural gas dropped by $5 billion after 2009.''
Alberta has a low royalty rate for bitumen compared to rates in countries that have similar heavy oil resources. Alberta, for example, takes from 25 to 40 per cent of profit, equivalent to 10 per cent of gross revenue. In contrast, Venezuela, which also extracts heavy oil, takes 40 per cent of gross revenue -- four times as much as Alberta.
Saudi Arabia captures 85 per cent of profits from its oil fields, while Norway takes 80 per cent of profit -- both three times as much as Alberta, Roy said. ''Newfoundland/Hibernia takes 30 to 50 per cent of profit, plus 7.5 per cent of gross revenue or twice as much as Alberta.''
The royalty expert also argues that the province has failed to control the pace of bitumen development. As a result, industry has put too much bitumen on the market and that glut, in turn, has played a role in driving down global prices.
more
Royalty Miscalculation Cost Alberta Billions, Expert Says | The Tyee
