the Post •
A PARKLAND INSTITUTE PUBLICATION
WINTER 2 0 0 6
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environment A January publication by investment bank CIBC, titled The Time of Sands, was widely reported in the media as a pronouncement of Alberta’s imminent rise to glory. The Calgary Herald covered the report with the headline, “Make way, Saudis, for Alberta oil sands; Region will be top supplier of new oil.” Alberta’s government no doubt enjoyed the CIBC publicity and viewed it as further support for current policies.
Revisiting the time of sands Report wrongly presumes that province will gain from fast extraction of oil
JONATHAN KAGAN
H
owever, reading beyond the head lines, one reaches the opposite conclusion. If the world is indeed entering “the time of sands,” then current policies, with the promotion of rapid oil extraction as their cornerstone, are an anachronism. To serve the best interests of Albertans, both today and for generations to come, extraction must slow down. The CIBC report makes three simple points relevant to the rate of oil extraction: first, oil prices can be expected to continue their rise, as production from conventional sources drops; second, rising prices increase the value of the oil sands; and third, a shrinking percentage of the world’s oil resources are available to private investment, thus making the oil sands a rare opportunity. Chief CIBC economist Jeffrey Rubin makes the point quite clear when he writes that the stage is set “for a mad scramble for whatever proven reserves the market still has access to. And there are no greater reserves accessible to private investment than the Canadian oil sands.” In other words, the report hints at imminent glory, but not for Alberta. The stars of the future are those who are buying oil sands today, the likes of Suncor, Imperial, and CNRL. On the Alberta government website, a prominently posted “open letter” from Premier Ralph Klein begins with the government’s slogan, “Alberta’s surplusour chance to invest in the future.” But if the premise of rising oil prices is correct, then Klein has it wrong. While the surplus of dollars is being generated, the “chance to invest” is being given away to developers. From another perspective, one could say that Albertans already have an investment in their future: several million hectares of oil sands. Sound financial management would dictate holding on to that investment, rather than converting it as quickly as possible to a monetary surplus. To paraphrase the Parkland Institute paper, “Toward an Energy Security Strategy for Canada:” encouraging overdevelopment today is tantamount to giving away the family silver. In the face of protests that rapid development of the oil sands damages
the environment, turning pristine forests and wetlands into moonscapes, increasing greenhouse gases, and threatening water reserves, the Alberta government has remained steadfast. But Albertans cannot continue to accept the mismanagement of their financial future. The recent $400 rebate, the “Ralphbucks” that ended up at random addresses throughout Canada, may have been scandalous, but it was only the tip of a scandalous policy of running up a surplus with little rationale other than that of giving away oil rights. When high oil prices caused the “unexpected” budget surplus of $6 billion this past November, the government should have brought policies in line with revised expectations. A first step could have been to stop the bi-weekly crown land auctions, which raised $2.2 billion last year, $400 million of which came from sales of oil sands rights. But the auction program, originally justified within a balanced budget, is set to continue throughout 2006, exacerbating the flood of unplanned surplus and enabling Klein to leave behind a legacy of having transferred into private hands the bulk of Alberta’s oil rights.
In other words, the report hints at imminent glory, but not for Alberta. The stars of the future are those who are buying oil sands today, the likes of Suncor, Imperial, and CNRL. If Alberta were to put off selling additional rights, those rights would continue to appreciate in value. Auction prices will rise not only because of increasing oil prices, but because of technological advances that allow the extraction of more oil, more efficiently, from each ton of sand. The same arguments also hold for extraction. Even after auctioning, the government should discourage development, because the price rises and technological advances will similarly increase royalty revenues if the extraction is delayed.
Beyond the long term financial gain, and beyond the environmental benefits, slower extraction will enable Alberta to grow with a more balanced economy, one that is less dependent on oil production. The appreciation of the Canadian dollar will be slowed, helping to promote local industry and helping to prevent the export of better paying manufacturing and high tech jobs. Inflation will be better controlled, serving the interests of lower income residents far more than an occasional $400 cheque. Finally, urban growth will be more gradual and can be planned for sustainability. Some have proposed that as oil becomes more valuable, the local market should be protected to keep down energy prices in Canada, or at least in Alberta. But the oil will run out at some point, and local protection, by
encouraging consumption, only hinders preparation for that inevitability. A responsible agenda must be predicated, instead, on slowing oil extraction. Slower extraction not only preserves the provinces wealth, but perhaps more importantly, enables local communities to develop infrastructures that are less dependent on fossil fuels. Ultimately, reducing the need for fossil fuels will be the only way to ensure Alberta’s energy security. ❂ Jonathan Kagan, a native of gas guzzling Los Angeles, currently lives with his family in Israel. In his local community, he promotes programs for energy frugality, such as telecommuting and efficientbuilding design.