Alberta’s current royalty review has come at a challenging time, with low oil and gas prices dragging down our economy and creating uncertainty for many Albertans. Once again, we face the cyclical nature of our energy industry. It is not the first time we have seen this and it definitely will not be the last.
The difficult question before the Royalty Review Panel is how to “optimize” the value of Alberta’s natural resources in such a way that benefits all Albertans. This requires a delicate balance of preserving government revenues and maintaining an economic climate for continued investment into the province.
The new royalty framework would enable diversification of Alberta’s economy by stimulating new investment in downstream value added developments. While some critics scoff at the aspect of “diversification” through adding value to our natural resources, there are real benefits that Alberta would realize from this approach. It is vital that we create a royalty framework that encourages diversification as this will lead to an economy that is not reliant on any one segment of the energy sector, which will create an increasingly stable economic environment. Historically, Alberta has been far too reliant on its upstream operations.
Altering the current royalty framework so that it recognizes and incents value added development within the province will help optimize returns to all Albertans. Generating additional investment in energy processing translates into additional government revenues, which can then be spent on provincial services and infrastructure. Albertans would see nearly $25 billion of new investment flow into the province’s energy sector as a result of a new royalty framework that recognizes the importance of value added investment, and this means more than simply adding new refining capacity that has been so widely debated. The majority of the opportunity lies in transforming our abundant and cost-advantaged natural gas resources into a variety of different products to meet the growing global demand for goods that are made of petrochemicals; this includes products ranging from cars and computers to headphones and household tools.
Conservative estimates on the potential of value added investment in downstream petrochemical operations is that it would create 25,000 new jobs for our struggling construction industry as well as 8,750 full time operating careers. New operations would also pay their share of corporate income taxes which results in millions of dollars of new government revenue that is not tied to the ups and downs of oil and gas pricing.
Adding value to natural resources here in Alberta will also help solve a fundamental problem of how we move our resources to world markets. The upstream energy sector has been plagued by delays in approvals and decisions for new export pipelines and LNG terminals, and this has substantially downgraded the real value of Alberta’s natural resources. Value added products, such as petrochemicals, are transported in a solid form of plastics or fibers, which utilizes existing rail and port systems.
Alberta’s Industrial Heartland Association (AIHA) submitted an official position, along with key recommendations, to Alberta’s Royalty Review Panel earlier this month. Our key recommendations are aligned with the government’s diversification mandate for the royalty review process and aims to recognize the benefits of adding value to our natural resources. This concept has been called on by the AIHA to be an underlying principle in guiding the structure of the new royalty framework. You can view our full submission paper at www.industrialheartland.com.
We have the opportunity with the current royalty review system to go beyond the debates on what is a fair return for our resources and set a new course for Alberta to capitalize on our natural resource advantage that will help us weather the cyclical storms that we have faced and become a true energy “leader” in the world. We encourage all Albertans to get involved, learn more about the opportunities that exist and let your voices be heard by the royalty review panel.
Councillor City of Edmonton,
Chair, Alberta’s Industrial Heartland Association