Alberta’s government will collect $1.2 trillion in royalties from the oil sands over the next 35 years, and emissions from oil and gas extraction are expected to triple during that time, a new report from an industry group says.
That stunning number -- equivalent to the entire annual economic output of Australia, or two Switzerlands, and equivalent to 10 times the annual budget of the province of Ontario -- will likely be welcomed by Albertans who can look forward to decades of budget surpluses and low taxes, but will likely raise alarm among economists about the future shape of Canada’s economy.
The Canadian Energy Research Institute projects that Alberta’s oil production will rise from 1.6 million barrels per day at present to 5.4 million barrels by 2045, and efforts to curtail greenhouse gases will have virtually no effect on emissions.
“While technological innovation within the oil sands industry (in addition to carbon capture and storage) is expected to help reduce these emissions, the emissions are still expected to rise,” the report states.
Its base scenario foresees an increase in carbon emissions from 45 million tonnes currently to 159 million tonnes per year by 2045 -- an increase of 3.5 times, roughly the same as the increase in oil output.
Including the oil sands, Alberta has 170 million barrels of proven oil reserves -- the world's third-largest supply, behind only Saudi Arabia and Venezuela.
The report predicts the royalties Alberta collects from the oil sands will double within four years, to $10 billion per year, reaching $30 billion in 2024 and $52 billion in 2040.
But Alberta’s emissions rules mean oil producers will pay in the billions, the report states. Assuming the provincial rules remain the same as they are today, oil producers will see their emissions penalties rise from $747 million in 2011 to $12 billion annually by 2045.
Alberta’s green rules require companies to buy carbon offsets at $20 per tonne for anything above their emission target this year. The amount paid is to be increased incrementally, by 4.5 per cent per year over the next 35 years. In total, the industry will have paid more than $200 billion in compliance costs by 2045, the study predicts.
The report will likely raise new concerns among some economists concerned that increasing dependence on energy exports is damaging Canada’s other economic sectors.
As oil sands profits and royalties grow, the economic gap between Alberta and the rest of Canada continues to expand. This can be most obviously seen in federal transfer payments, which equalize provincial revenue between “have” and “have-not” provinces.
Traditionally, Alberta and Ontario were “have” provinces that contributed more tax money than they received from the federal government. But today, with Ontario’s manufacturing sector slumping (some say because of the oil sands-linked “petro-dollar”) and oil prices above $100, Alberta and the other "energy" provinces -- British Columbia, Newfoundland and Saskatchewan -- have become "have" provinces, and Ontario is a net recipient of transfer payments -- $3.2 billion for 2012-2013.
Canadian economists have been warning for years that excess reliance on oil and gas could cause Canada to suffer from “Dutch Disease,” which occurs when a country’s currency rises in value as a result of an oil boom, making non-energy industries uncompetitive in the global economy, and “hollowing out” the country’s manufacturing and knowledge base. This phenomenon occurred in the Netherlands in the 1960s and 1970s, hence its name.
Ontario Premier Dalton McGuinty recently found himself in a spat with Western premiers when he complained that the “petro-dollar” was driving manufacturing out of his province.
"If I had my preferences as to whether we have a rapidly growing oil and gas sector in the West or a lower dollar benefiting Ontario, I stand with the lower dollar,” McGuinty said, reflecting the views of many economists.
But that drew a sharp rebuke from Alberta Premier Alison Redford, who called McGuinty’s argument a “false paradigm.”
"We know how the value of the dollar works,” she said. “It's in relation to an overall national economy. The reason the Canadian dollar is high is partly because the United States has been going through some economic difficulties.”
Infighting among provinces is not the only front where the oil sands are causing controversy. Another front is the Keystone XL pipeline, whose proposed construction to carry Alberta oil to Texas refineries has caused numerous protests in the U.S. Keystone builder TransCanada Corp. recently announced the start on construction of the southern leg of the pipeline, even as a final decision on the matter awaits the White House in 2013.
Another front is Europe, where the EU has delayed a decision on labelling oil sands bitumen as a particularly dirty form of energy, a move that would effectively bar oil sands product from EU countries.
Opponents of Alberta bitumen argue it is a particularly high-emission form of oil, but oil sands industry backers argue that characterization is unfair, as oil sands product is only slightly more polluting than Venezuelan crude, which doesn’t face the same “dirty oil” label from the EU.
Fort McMurray, Alberta, has seen its population grow from 926 in 1951, to more than 60,000 today -- a growth rate of 70,000 per cent over 60 years. The city grew by 14,000 people, or 29 per cent, in just the 2006 to 2011 period. Source: <a href="http://www12.statcan.gc.ca/census-recensement/2011/dp-pd/prof/details/page.cfm?Lang=E&Geo1=POPC&Code1=0292&Geo2=PR&Code2=48&Data=Count&SearchText=Fort McMurray&SearchType=Begins&SearchPR=01&B1=All&Custom=&TABID=1" target="_hplink">StatsCan</a>
Whereas in Alberta in general there are approximately 99 to 104 men for every 100 women, in Fort McMurray, where male-dominated oil jobs dominate, that ratio is skewed well towards men. There are 110 to 140 men for every 100 women in Fort McMurray, depending on the neighbourhood. Source: <a href="http://kcorreia.com/2011/fortmac-communities/" target="_hplink">Kevin Correia</a> <em>This caption has been corrected from an earlier version.</em>
The average price of a two-bedroom apartment in April, 2011, was $2,152 -- comparable to major Canadian cities like Toronto and Vancouver. For those rates to be affordable, you'd need to earn at least $80,000 per year. But given that oil workers can earn as much as $120,000, that is, actually, affordable by Fort McMurray standards. Source: <a href="http://www.woodbuffalo.net/AboutCostIntro.html" target="_hplink">Wood Buffalo Regional Municipality</a>
Fort McMurray sits at the centre of what is now recognized as the third-largest proven supply of oil in the world. Alberta has 170.8 billion barrels of oil in the ground, about 12 per cent of the world's total. By comparison, Saudi Arabia has 260 billion barrels, and Venezuela 211 billion. The oil sands' share of that total continues to grow, and with it, Fort McMurray's importance to the industry. The city is expected to quadruple in size, to about 231,000, within 20 years. Source: <a href="http://www.energy.alberta.ca/oilsands/791.asp" target="_hplink">Government of Alberta</a>
There are 140,000 people employed in Alberta's oil and gas extraction industry -- a very large number, considering the province's total population of 3.6 million. In all, energy counts for 23.4 per cent of Alberta's economy. Source: <a href="http://www.energy.alberta.ca/oilsands/791.asp" target="_hplink">Government of Alberta</a>
Classified as a sub-Arctic zone, Fort McMurray is bitingly cold, even by Canadians' standards. The average night-time low in January is minus-24 Celsius, or minus-11 Fahrenheit, though the average daytime high in July does reach a decent 23 Celsius (73 Fahrenheit). Source: <a href="http://www.theweathernetwork.com/statistics/CL3062693/caab0124" target="_hplink">The Weather Network</a>