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Get ‘em while they’re green
Our new premier, Ed Stelmach, promised a review of oil royalties in Alberta if he won the leadership.
Stelmach won, and as we speak, the review is underway.
It’s a review that, while not exactly long overdue, is needed because of obvious deficiencies in the Alberta royalty structure.
The royalty problem isn’t exactly sexy news. Albertans are mostly happy with new houses, new cars and trucks, and new Tim Horton’s. The ins and outs of a billion dollars that might disappear off to New York or Hong Kong isn’t a problem in most people’s minds.
But, there are still connections. Ft. McMurray and its housing problems. Small business struggling to find staff. Construction costs for schools and hospitals going through the roof. A case can be made the royalty structure is so good, these problems are all caused directly by too much money rushing in from around the world. Depending on your point of view, the rush of incoming money is only going to get better. Or it’s only going to get worse.
And while investment money might be rushing in, in the end, that money is small peanuts compared with the enormous profits that will be taken out. Potentially, there are trillions of dollars!
Alberta’s $30 odd billion in the Heritage Fund is nothing compared to Norway. That country has squirreled away around $250 billion in royalties from North Sea oil projects. And that’s with a population barely 1 million more than Alberta’s 3 million or so. There’s room for improvement here in Alberta.
Russia in 1996 signed an oil deal with Shell very similar to the Alberta oil sands investment incentives. Shell would build the Sakhalin energy project, the world’s largest. The agreement said Shell would recoup all its costs, plus get a 17.5 per cent return, before Russia was allowed to take 10 per cent of the oil and gas the project was generating. Alberta oil sands plants in comparison, pay perhaps 1 per cent in royalties until capital costs are recouped. Wow.
Phase II of Sakhalin costs ballooned from $10 billion in 1997 to $20 billion today, with Russia picking up the tab of course. Russians said Shell didn’t care how much they spent. CNRL said exactly that about it’s Horizon plant in Ft. McMurray. “We don’t care how much costs are rising,’’ they said last year, “we’re going ahead.’’ Why not? It’s a free ride anyway.
Unfortunately for Shell, in December Russia tired of the game. In what is called classic gangsterism and thievery, Russia forced Shell to take a minority interest in Sakhalin for about 50 cents on the dollar. Shell and Japanese investors Mitsui and Mitsubishi also agreed to eat about $3.6 billion of cost overruns that up to now, hadn’t bothered them.
Stealing from Russians is “good business.’’ When Russians steal from you, it’s “strongarm tactics.’’
Compare that to Alberta. Safe. Secure. Politically stable.
And when it comes to energy projects, maybe still wet around the ears.
JEFF BURGAR
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