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article imageReport on oil and gas extraction revenue shows decline

By Ken Hanly     May 3, 2018 in Business
A new comprehensive report on Canada's energy sector has been released. The report claims that Canada's remaining fossil fuels are being sold off at low prices and with declining returns to federal and provincial governments.
The full report or a summary can be downloaded here.
Revenues from Canadian oil and gas production are declining
Three decades ago, many Canadian governments earned substantial income from the country's oil and gas production mostly through royalties or taxes. This is no longer the case the report claims.
Just since 2000 revenue from hydrocarbon production has plummeted 63 percent. Revenue from corporate taxes on drilling and refining activity has declined by more than half as well.
The report, Canada's Energy Outlook
The report is researched and written by David Hughes, an earth scientist and one of Canada's foremost energy experts. His report takes a hard look at Canadian energy production, emissions, low carbon alternatives, and the decline of revenues over time from our energy resource-based industries. The data used comes from a wide range of resources and data bases such as that of Natural Resources Canada, Drillininfo, BP Statistical Review of World Energy and also provincial budgets.
The lucrative energy industry is putting less and less money into the governments coffers even though it is claimed that the energy company profits are paying for such items as better schools and hospitals. The overall picture is one of dramatic and continuing revenue shrinkage.
Many sources show that revenue to the government from fossil fuels actually peaked in 2008 along with a spike in the price of gas and oil but since then revenues have been in decline.
As mentioned, just since 2,000 royalty revenue has declined from oil and gas production by 63 percent even though national oil production grew by 75 percent. Hughes notes: “Canada’s non-renewable energy resources are clearly being sold off for ever-decreasing benefit."
Alberta as a case study
The province of Alberta is Canada's largest extractor of oil. Oil and gas production in Alberta has doubled since 1980, primarily due to expansion of production in the Oil Sands. Yet, revenue from royalties has declined from 80 percent of provincial revenues in 1979 to just an estimated 3.3 percent in 2016 according to Hughes, a huge decline.
There was a peak in Alberta's revenue from oil and gas of $14 billion in 1979. The next record was a spike to $17 billion in 2005 much of this from natural gas. Ever since that time there has been a steep decline. The government has a policy of favoring an increase in production rather than attempting to maximize value produced for the government. The report said that in 2016 the estimated revenue from oil and gas extraction was only $1.4 billion — down fully 90 percent from the 2005 levels.
The report also claims that data compiled by the Canadian Association of Petroleum producers shows that royalty revenues paid to oil exporting provinces, Alberta, Saskatchewan and Newfoundland, declined from 2000 to 2015 from $11.1 billion to $4.1 billion. This was a period during which the price of oil had climbed to highs of more than a hundred dollars a barrel.
Corporate tax payments from oil and gas extraction also declined
Between 1997 and 2015 tax revenue from oil and gas extraction, made up 30 percent of total government revenues. But that amount has been declining. Corporate income tax peaked back in 2006 and has declined 51 percent since that time. Although there has been a 45 percent growth in oil production since 2006. The report notes that the oft-cited claim that growing oil and gas production is vital to Canada's economic being has become less true over the past decade.
British Columbia is also experiencing declining royalties
Gas production has doubled in BC since 2005 but royalty and other revenue from non-renewable resource has declined by 84 percent and constituted only one per cent of government revenue last year.
The Tyee has reported that between 2009 and 2014 the BC government subsidized oil and gas companies fracking shale basins by extending them more than $1 billion in tax credits.
The energy industry is mature and shrinking
The industry is now becoming dependent upon extracting resources of lower quality and which require intensive use of energy to extract and often contribute to greenhouse gases.
The percent of the overall workforce in the oil and gas industry is only 2.23 percent and often the jobs are temporary construction work, such as that in the Oil Sands. Even in Alberta there are fewer than seven percent of the workforce employed in fossil fuel extraction and distribution.
In 1997, the percentage of Canada's GDP contributed by the energy industry was 9.2 percent, whereas in 2015 it was only 7.4 percent.
Conclusion
The report claims that politicians do not understand that oil and gas producers exploit the most high grade resources first and leave "the lower-quality, higher emissions, and higher environmental-impact resources for the last."
We do not know how long it will take to transfer to renewable energy resources. Currently, renewable sources make up only three percent of the energy supply. Hughes argue that we should not be selling off our dwindling oil and gas resources at low prices as they remain a valuable backstop for us. Hughes claims: “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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