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Ralph Klein has gone and it is time to retire Ralph's World. Thanks to all of you who have supported this venture by contributing material and through your comments. It has been fun.

Should we get another blog underway? Let me know your thoughts by e-mailing me at johnnyslow@gmail.com.

John Slow
January 1, 2007

Wednesday, April 28, 2004

Freddie's Diary - Article 14 

COULD WE EVER MATCH NORWAY?
Alberta and Norway share similar comparative advantage: Oil, gas and human development. Norway and Alberta produce almost the same volume of oil and natural gas. Norway is now ranked number one in the world according to the United Nation's Human Development Index (HDI); based on my preliminary provincial HDI estimates, Alberta would rank with Norway. However, comparing our respective management of oil and gas natural capital assets reveals important differences worth debating.

Last week Alberta released its Budget 2002 estimates and forecast oil and natural gas revenues (royalties and other taxes) of $5.77 billion for fiscal year 2001/02 based on the government's 2001-02 oil prices forecast of $30.63 Cdn per barrel (Alberta wellhead price). By comparison, Norway is forecasting a net cash flow from state petroleum activities of roughly $32.56 billion (189 billion Krona) from North Sea oil and gas production based on oil price forecast of the equivalent of $31.01 per barrel.

In 2001-02 Norwegians may realize more than five times more revenue per barrel of oil and gas produced than Alberta: $19.65 for every Norwegian barrel of oil and gas produced versus $3.88 pr barrel of Alberta oil and gas produced. If Albertans received the Norwegian rate of return on their oilsands and natural gas production, $29.2 billion in oil and gas revenues would be flowing to government coffers in 2001-02, or $23.4 billion more than is budgeted.

That is more than enough money to pay for increased teachers salaries, reduced class room sizes, reduced healthcare premiums and urban transportation infrastructure and carbon reduction technologies that might satisfy the Kyoto protocol objectives. True, Alberta is not Norway. Of the estimated $32.5 billion Cdn in Norwegian oil and gas revenues, 46.4% is expected from the State's Direct Financial Interest (SDFI) in the North Sea oilfields through Statoil (Norway's national oil company). 2.1% is Statoil stock dividends and the remaining 51.5% will come from royalties, a special profits tax, corporate taxes, area fees and carbon tax.

Alberta has no direct financial interest in oilsands, or any special profit tax nor a carbon tax. More over, Norway produces more oil but less natural gas than Alberta, with crude oil fetching a higher price then natural gas these days. Yet Norway and Alberta are comparable.

Norway has 4.5 million people; Alberta 3.0 million. Norway will produce 1.654 billion barrels (oil equivalents) of oil and natural gas in 2001; Alberta will produce 1.485 billion barrels. Norway produces more oil (3.337 million barrels per day) versus Alberta's 1.490 million barrels per day. However, Alberta produces more natural gas --5,342 billion mcf, versus Norway's 2393 billion mcf. Alberta's oilsands contain recoverable reserves of 300 billion barrels, more than Saudi Arabia's reserves of 240 billion barrels. Norway's GDP per capita is $35 955 versus Alberta's $32 233 per capita. Each Norwegian will realize $7 236 in oil and gas revenues while each Albertan will realize only $1 916. Norway's growing Petroleum Fund is estimated at $54 billion while Alberta's Heritage Fund languishes at roughly $12 billion.

So what's Norway's secret of success? The Norwegian government invested in the North Sea oil and gas reserves development through Statoil. It is currently reaping a huge revenue stream in the form of a State's Direct Financial Interest and dividends from Statoil (more than half of the 189 billion Krona from the total oil and gas revenue). Alberta also invested heavily in oilsands technology over the years, yet, in 2001, I estimate the government will earn an estimated $0.98 per barrel in royalties.

By comparison, in 1996-97 when the price of oil was roughly $26 per barrel, oilsands royalties were estimated $2.95 per barrel. The drop in royalties reflects, in part, the impact of the "generic" oilsands royalty regime that took effect in 1997. Under the new oilsands royalty regime oilsands producers pay a base royalty of 1% of the gross value of production benefiting from a capital cost allowance that allows them to write off close to 100% of their new oilsands capital investments against revenues in the determination of their royalties payable.

The oilsands royalty structure means that Albertans could be waiting years before they see a revenue stream as healthy as historical rates and may never see the rates of return Norwegians are experiencing today. Could Albertans get more from their comparative advantage in black-gold assets? The Norwegian benchmark serves as an important reminder that Alberta might do more with its advantages. Perhaps we can learn more about the Norwegian advantage and their approach to fiscal and resource management.
Mark Anielski - Alberta economist, and advisor to governments and business on performance measurement. Mar. 26, 2002. EJ

I imagine Klein and his government's answer to this concept would be Ya But, Ya But. "We had to give away the store, otherwise our Big Business cronies would never have consented to invest in the oilsands." It is my humble opinion that the Klein government does not wish to recognize or assist, children in poverty, educational requirements, high University tuition, disabled people, people on Social Assistance, Seniors or Health Care. If they give all valuable assets away they will not have funds to address the needs of Albertans.
Remember Mulrooney(the ultimate Conservative) said, "Canadians are ungovernable because they are too well educated and too well fed." Isn't it about time we got paid for the resource that every Albertan owns? Exercise your vote in the next election.

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