For those of you who haven’t caught wind of this, Alberta’s in an election again. It’s a fairly depressing event, as I’m realising that I’m actually having to consider the Less of Two Evils and lean towards the incumbent PC just to avoid the potential idiocy of the upstart Wildrose.
Anyway, one topic that’s come up a few times is the issue of royalty rates that companies pay to extract oil from the oil sands. The NDP (who’ll never see office in this province) want to raise the rates, the Liberals waffle, and both the PC and the Wildrose are adamant that the rates not change. It got me to wondering: are our rates even remotely fair?
To paraphrase Adam West’s Batman: To the internet!
“Fair”, as we all know, is highly subjective. But we’re talking the use of a natural resource, and a reasonable compensation for its acquisition. The best other example of a (current) use of a natural resource is logging in British Columbia. (Yes, mining would be much more comparable, but mining has pretty much all but collapsed in British Columbia.) So I wondered — is Alberta getting for its oil what BC gets for its trees?
Okay, so this information is a bit tricky to find, and even harder to compare. So let’s consider the realities first. I’m going to compare the rates at which BC collects revenue for trees harvested in 2010, and the revenue Alberta collected from extracted bitumen (the oil sands) in 2010. Both will be measured in cubic metres, since there’s no way to compare them otherwise (trees are in cubic metres, but oil is measured in BBLs, which is some typically archaic measurement — more on that later).
Let’s do trees first. They’re easier.
British Columbia harvests a lot of trees (for better or for worse). Despite the environmental issues surrounding logging, I find harvesting trees to be a (relatively) good industry, in that it’s an organic product that tends to grow back.
BC charges what it is called a “stumpage fee” for cutting down a tree. This not only generates revenue for the province, but likely also keeps entire forests from disappearing due to the inevitable cost. Those fees vary throughout the year due to market influences, as well as where the tree was cut down — it costs more to cut down a coastal tree than it does an interior tree.
In 2010, British Columbia reported a softwood lumber production of 27 million cubic metres. Fees ranged from $5.34 at the start of 2010 to about $6.87 at the end of year on the coast; the interior ranged from $4.06 down to $3.52 in the interior.
I could go rather insane on the dynamics of cost variations and how to calculate a reasonable average … but you’ll find I don’t need to go to that level of detail. I couldn’t find a total revenue from felling trees, but apparently in 2010, the Ministry of Forest, Lands and Natural Resources (who collects the stumpage fees) collected merely $433 million.
Okay, now let’s talk oil.
This one, as I said, is a bit trickier because it’s not actually easy to find the collective output from Alberta per year. It’s important because royalties are charged on different rates depending on the investment a given company has made, how long it’s been there, and even if the rates are grandfathered from much earlier negotiations. And frankly, I’m not an expert, so me trying to decipher all of this before the election seems really hard.
According to the Canadian Association of Petroleum Producers, the average oil sands production was 1.5 million barrels/day in 2010. (Admittedly, that link is for a forecast, but it was made halfway through 2010, so I imagine it’s not far off.) That works out to 547.5 million barrels for 2010 (give or take a couple million). Using a standard measurement of 158.9873 L per barrel, that gives us 87.04554675 billion litres of oil sands production, or 87.04 million cubic metres.
Revenue from the oil sands (in the way of royalties) was more than $3.7 billion. That equates to roughly $42.51 per cubic metre in revenues. Nearly ten times what BC gets for its trees. (Minor detail: BC’s trees grow back. Oil doesn’t.)
I’m reticent to draw a conclusion here, mostly because the numbers just somehow feel wrong. I’m hoping I’ve got them calculated right, but … well, I guess Alberta doesn’t have that much to complain about, at least comparatively speaking? I’d still argue for a higher rate (when the oil runs out, Alberta might not be any better off than Dubai, just without the mega malls, insanely tall towers, and uber-opulence), and invest that in our future.
But at least for the present, maybe we’re doing alright?
(Disclaimer: I had the hypothesis that tree stumpage fees were higher. I honestly felt — and still feel — that the royalty rates are too low. So I fully expected oil to come in way under trees … probably why the numbers don’t feel right to me. I’m happy to be corrected!)