Citizen Action Monitor

New report crushes Trudeau’s claim oil/gas/pipeline expansion vital to our economic well-being

“Oft-cited claim that growing oil and gas production is vital to Canada’s economic well-being … has become progressively less true over the past decade.”

No 2212 Posted by fw, May 5, 2018

Andrew Nikiforuk

“A comprehensive report on Canada’s energy sector says the nation’s remaining fossil fuels ‘are being sold off in an environment of low prices with minimal and declining returns to governments.’ More than 30 years ago many Canadian governments earned substantial income from oil and gas production primarily through royalties or taxes, but that is no longer the case, says the report. Royalty revenue from hydrocarbon production has plummeted 63 per cent since 2000, and corporate taxes earned by government on drilling and refining activity have declined more than 50 per cent. Canada’s Energy Outlook, researched and written by earth scientist David Hughes, one of the nation’s foremost energy experts, takes a hard look at Canada’s energy production, emissions, low carbon alternatives and resource-based revenue over time.”Andrew Nikiforuk, The Tyee

Andrew Nikiforuk is an award-winning journalist who has been writing about the energy industry for two decades and is a contributing editor to The Tyee.

Below is a repost of Nikiforuk’s excellent summary of highlights of the 180-page report, Canada’s Energy Outlook published by the Corporate Mapping Project, the Canadian Centre for Policy Alternatives and the Parkland Institute, and largely funded by Ed Schreyer’s Canadian Shield Foundation and the Canadian Centre of Policy Alternatives. You can find the original report here.

In my repost below, I have taken the liberty of adding six ‘BAD NEWS’ categories, with text highlighting, to emphasize the extent of the decline of the industry. As well, I have numbered each one of Andrew’s 23 “bad news” findings.

For those, like me, who sometimes confuse the meaning of the economic terms ‘fiscal’ and ‘monetary’ here are the definitions: ‘fiscal’ — of or relating to public revenues (taxation), public spending, debt, and finance; ‘monetary’ — relates to money and how it is supplied to, and circulates in, an economy. (Source: www.businessdictionary.com/definition/fiscal.html )

To read Nikiforuk’s piece as published on The Tyee website, click on the following linked title.

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Government Revenue from Fossil Fuels in Sharp Decline by Andrew Nikiforuk, The Tyee, May 2, 2018

New report documents dismal fiscal trend for governments who tout energy industry’s importance to bottom line.

A comprehensive report on Canada’s energy sector says the nation’s remaining fossil fuels “are being sold off in an environment of low prices with minimal and declining returns to governments.”

More than 30 years ago many Canadian governments earned substantial income from oil and gas production primarily through royalties or taxes, but that is no longer the case, says the report.

[BAD NEWS for Canada]

(1) Royalty revenue from hydrocarbon production has plummeted 63% since 2000, and (2) corporate taxes earned by government on drilling and refining activity have declined more than 50%.

Canada’s Energy Outlook, researched and written by earth scientist David Hughes, one of the nation’s foremost energy experts, takes a hard look at Canada’s energy production, emissions, low carbon alternatives and resource-based revenue over time.

Drawing on data bases as diverse as Natural Resources Canada, DrillingInfo, BP Statistical Review of World Energy, and provincial budgets, Hughes found the lucrative energy industry is putting less and less money into Canadian government coffers despite daily claims that its profits are paying for better schools and hospitals.

Overall the statistical and fiscal evidence paints a picture of dramatic and sustained revenue shrinkage.

The report, peppered with graphs and sources, documents that (3) royalty revenue from fossil fuels peaked in 2008 along with a large spike in oil and gas prices and has fallen ever since.

(4) Royalty revenue, usually a percentage of bitumen or gas production, has declined by 63% since 2000, despite national oil production growth of 75 per cent and combined oil and gas production growth of 27%.

(5) “Canada’s non-renewable energy resources are clearly being sold off for ever-decreasing benefit,” Hughes said.

[BAD NEWS for Alberta]

Alberta government non-renewable resource revenue as a percentage of total government revenue from 1970 to 2016. Source: Alberta Energy July 2017 and Alberta 2017 budget estimates; production from CAPP and NEB; other resource revenue includes rental fees, lease sales and coal royalties.

(6) Alberta, Canada’s premier petro state and largest oil extractor, has led the way in earning less and less for the owners of the resource.

While oil and gas production has doubled in Alberta since 1980, primarily due to expansions in the oil sands, (7) revenue from royalties has plummeted from an 80% share of government revenue in 1979 to an estimated 3.3% in 2016, reported Hughes.

Alberta government revenue from oil and gas extraction hit a peak of $14 billion in 1979 and spiked again to $17 billion in 2005. (The bulk of that windfall in 2005 was from conventional natural gas, a resource now in steep decline.)

Since then the (8) government share has rapidly diminished partly due to a low royalty system that has favoured rising production over maximizing value for resource owners.

(9)Estimated 2016 revenue of $1.4 billion is down 90% from 2005 levels, despite considerable production growth since then,” said the report.

[BAD NEWS for Oil Exporting Provinces]

Citing data compiled by the Canadian Association of Petroleum Producers, Hughes also found that (10) royalty revenues paid to oil exporting provinces such as Alberta, Saskatchewan, Nova Scotia and Newfoundland “have declined 63% between 2000 and 2015, from $11.1 billion to $4.1 billion.”

(11) These declines happened during a period when oil prices hit global highs of more than $100 a barrel.

According to the report, royalties once accounted for between 13 per cent and 17 per cent of the sales revenue from oil and gas between 1990 and 2000.

(12) Since 2000, royalties barely made a dent in things and have declined to 4.5% of sales revenue, a decrease of 74%. Meanwhile oil and gas production grew by 27%.

[BAD NEWS for Total Government Revenues]

(13) Corporate tax revenue, which once made up 30% of total government revenues from fossil fuel production between 1997 and 2015, has also been declining.

(14) Corporate income tax revenue peaked in 2006 and has declined by 51% since then. Corporations paid less to government despite a 45 per cent growth in oil production and a 15 per cent growth in combined oil and gas production since 2006.

The oft-cited claim that growing oil and gas production is vital to Canada’s economic well-being and its ability to protect the environment has become progressively less true over the past decade,” the report said.

(15) British Columbia, Canada’s second largest miner of natural gas, has also experienced declining royalties. While gas production has doubled in northeastern B.C. since 2005, royalty and other non-renewable resource revenue “has declined by 84 per cent, such that it was only one per cent of government revenue in 2017.

(The Tyee has reported that between 2009 and 2014 (16) the B.C. government actually subsidized oil and gas companies fracking shale basins by extending more than $1 billion in the form of tax credits.)

[BAD NEWS for Energy Sector]

The report also provides a reality check for pipeline proponents who portray the energy sector as a dominant job creator and economic force in the country.

(17) Oil and gas workers, for example, account for only 2.23% of the national workforce, and the majority of those jobs are temporary construction work in the oil sands.

(18) In Alberta, where industry has massively cut workers since the oil price collapse of 2015, fewer than seven% of the workforce is employed by fossil fuel extraction and distribution.

(19) As a percentage of Canada’s GDP, the energy industry declined from 9.2 per cent in 1997 to 7.4 per cent in 2015.

The evidence suggests a mature and shrinking industry now dependent on the extraction of lower quality and energy intensive resources such as bitumen and unconventional shale gas.

Hughes, whose work has been cited in the Economist, Bloomberg and Canadian Business, says the evidence paints a consistent pattern: (20) In short, Canada’s remaining non-renewable energy resources are being sold off in an environment of low prices with minimal and declining returns to governments.”

[BAD NEWS for Politicians Who Just Don’t Get It]

The report concludes that (21) politicians don’t understand that the nature of oil and gas production “is to high-grade the most economic resources first and leave the lower-quality, higher-emissions and higher-environmental-impact resources for last.

(22) Given that nobody knows how successful a transition to renewable energy will be (renewables are now 3% of the nation’s energy supply), Hughes argues that Canada’s oil and gas resources remain a valuable backstop “should renewable sources prove to be insufficient.”

(23) “Selling off the best of Canada’s remaining non-renewable resources at low prices, with minimal and declining returns to the public, compromises future energy security.”

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