The Redford government's promise to keep building Alberta despite budget woes and bitumen bubbles could lead the province to embrace alternative financing to pay for high-priority construction projects.
Premier Alison Redford and high-ranking cabinet ministers have said repeatedly since last fall they will borrow to bankroll critical infrastructure projects such as the twinning of Highway 63 to Fort McMurray.
Some of that debt could come in the form of public-private partnerships — an alternative method of building, maintaining and paying for major public works projects often referred to by the acronym P3.
"I think we've been pretty clear, we're not only going to be using P3s, but we're going to be using the capital markets for infrastructure and only when it makes financial sense to do so," Finance Minister and Treasury Board president Doug Horner said in an interview last week.
The 2013-14 budget to be delivered March 7 should add clarity. But if the province decides to use P3s to spread out construction costs, it will build on a decade of experience with the format.
Since 2003, the government has used the financing method to build large sections of Edmonton and Calgary's ring roads, as well as 41 schools and a water and sewer treatment plan in Kananaskis.
Under a P3, a government signs a contract with a private partner who agrees to design, build, maintain, and sometimes operate, the project over a period of time. That private company finances some or all of the project, and the government repays the company, with interest, over a set term of several years.
As an example, the northeast leg of Anthony Henday Drive, scheduled to open in 2016, is a $1.81-billion P3 project that will be repaid over 34 years.
Redford has made no secret of her interest in P3s. When she became honorary chairwoman of the Canadian Council for Public-Private Partnerships in November, she said in a statement she was pleased to work with the council to champion P3s across Canada.
After last week's Alberta Economic Summit, Redford described discussions related to P3s as "fundamental."
"There was much comment about the fact this isn't about incurring debt, this is about assuming risk," she said. "That these are still assets that continue to be publicly owned, but they allow us to build them in a more effective way."
Still, the subject of borrowing to pay for schools, roads or housing projects — always contentious in a province that wore its debt-free status like a badge of honour — becomes even more complicated when discussing P3s.
Advocates praise them as an efficient way of building and transferring risk from the public to the private sector. The P3 for the northeast leg of the Henday means the 27-kilometre stretch of road will be finished three years faster than through traditional channels and for $340 million less, according to the province.
Critics, however, pan P3s for their lack of flexibility and contractual secrecy.
NDP MLA David Eggen pointed to the complaints that surfaced in the first round of P3 schools that opened in Edmonton and Calgary in September 2010. Those schools, built on a standard design, faced many restrictions on how they could be used.
Alberta Education said last March they adjusted the contracts for the next round of P3 schools to allow outside groups to lease space for things like child care programs or community events.
Alberta Federation of Labour president Gil McGowan said he was disappointed to hear Redford focusing on P3s after the summit. He believes they do not provide better value for taxpayers.
"We now have more than three decades of (international) experience with P3s and what that experience shows us is that P3s are a shell game that almost never works for citizens and taxpayers," McGowan said.
"P3s are helpful to politicians in the short run because it allows them to move upfront costs for large infrastructure projects off the books in the short term, but over the long term we end up paying at least as much, if not more."
Wildrose leader Danielle Smith said P3s are simply another form of borrowing, which her party opposes in all forms. "We simply do not believe that once you start down the track of borrowing money that a government will ever stop," Smith said.
Anthony Boardman, Van Dusen professor of business administration at the University of British Columbia's Sauder School of Business, studies P3s. He said experience indicates that if a project is complicated, it may be better to keep it within government.
"Over time, what's happened is some governments are better at managing them, although there's still a fair amount of evidence we pay too much for them," Boardman said.
There are ways the government can make sure a P3 is a good fit, he said. One important step is to have an independent evaluation process looking not just at the financial impact of a P3, but also the social costs.
Governments often fail to take the social consequences of P3s into account, such as limits the arrangement might impose on community groups' use of a school building.
"That's a problem," Boardman said. "The reason why they don't is because it's not easy. But instead of doing the wrong thing because it's easy, on all projects we should devote the resources to getting it right."
The government also needs to be as transparent as possible, Boardman said.
In Alberta, the provincial government publishes more information today about new P3s than it did for the first P3s a decade earlier. Alberta Transportation's information about the northeast leg of the Henday includes a value for money report and contract information. (http://www.transportation.alberta.ca/3787.htm).
It also consults with the Advisory Committee on Alternative Financing, a panel of private-sector experts that examines the business cases for P3s and gives its opinions to Treasury Board.
Committee chairman Tim Melton, executive chairman of Melcor Development's board of directors, said P3s can be an excellent way for government to build but are not the best fit for every project.
Whether the government uses P3s, traditional bonds or cash to pay for construction, Alberta's finance minister said the province will take the advice Albertans have been giving to act more like a business when it comes to deciding how to pay for infrastructure.
"Money-in-the-mattress mentalities don't work," Horner said. "It certainly doesn't create value for future generations of Albertans.
"We have growth in this province and that makes us different than almost every jurisdiction in the country and we have to manage for that."
The Edmonton Journal, Monday, Feb. 18, 2013
Byline: Sarah O'Donnell
According to experts inside Alberta Energy, it's much more profitable to refine more of our oil before we ship it.
Both the Alberta and federal governments are now pointing to the “oil price differential” as the culprit that has forced them to revamp budget projections and talk darkly about the need for cuts to programs, services and public employees.
But is this really true? Or is it just a complicated but convenient excuse that draws attention away from deeper problems?
A 2011 Alberta government research document recently released to the Alberta Federation of Labour after a lengthy tussle with the Freedom of Information gatekeepers suggests that it is a convenient excuse.
“The premier is telling only half the story,” says AFL president Gil McGowan.
The oil price differential is not something people think about, even in Alberta. It’s the kind of numbers game that only experts in the field usually pay attention to.
To put it simply, the oil price differential is the gap between the price Alberta producers get for the heavy oil that comes from the oilsands and the benchmark price for West Texas Intermediate, which is a lighter oil. Right now the U.S. has access to lots of lighter oil, so our unrefined oil is less desirable and fetches less per barrel.
According to the Alberta government, Alberta heavy oil producers are getting $30 a barrel less than the benchmark priceAlberta heavy oil producers are getting $30 a barrel less than the benchmark price. And this is the main reason, says Premier Alison Redford, the provincial treasury has a $6 billion shortfall to deal with. Federal Finance Minister Jim Flaherty is using the same excuse for reduced federal revenues.
So, you might ask why don’t we refine more of our oil before we ship it south or ship it anywhere for that matter? Wouldn’t that make more economic sense?
According to the experts inside Alberta Energy who wrote the research paper that was stamped “secret” and never publicly released, it certainly does make more economic sense for a key sector of the oilsands industry, especially when there is a large price differential.
“Stand alone mining is sensitive to changing light-heavy differentials while integrated mining is much less responsive. Despite the fact that adding upgrading capacity makes less sense in today’s market (in 2011 oil was selling at $100 per barrel) our sensitivity analysis suggests an integrated upgrader serves as a hedge against volatility of light-heavy differentials,” they wrote.
In other words, in today’s market where the oil price has slipped and the differential is greater, the oilsands players who mine and refine oil are much more profitable than those who simply mine and ship it south. And profitability means more money for both the overall economy and the provincial and federal treasuries.
“We think the premier and the government should be shouting this from the rooftops,” says McGowan. “It’s the upside of the price differential and we should be taking advantage of it.”
Instead, only 57 per cent of oilsands production is upgraded, and that percentage is expected to slide dramatically in the next few years.
McGowan has long been advocating for more refineries in Alberta. So did former Alberta premier Peter Lougheed, the godfather of oilsands development, right up until he died last September.
Not only would more refineries create more value for the resource in Canada, they would provide good jobs for thousands of workers. And wouldn’t refined oil be less of an environmental threat in all those pipelines that are currently being thwarted because they will carry diluted bitumen from the oilsands?
“Government can’t force industry to build upgraders. But it can make the most of an opportunity through good policy, regulation, incentives, even equity partnerships,” says McGowan. “That’s what Lougheed did with the petrochemical industry and it worked.”
It’s not as though oil price volatility is a sudden turn of events. The price of oil has been volatile ever since someone first discovered it seeping from the ground and realized it might be useful for lighting lamps.
Governments could face up to the volatility and minimize the risks. Instead they seem to be betting that no one will notice the truth differential — the widening gap between reality and political propaganda.
The Toronto Star, Tuesday, Feb. 12, 2013
Byline: Gillian Steward, Calgary writer and journalist
CALGARY — Premier Alison Redford was ready to declare the inaugural Alberta economic summit a success Saturday even without a consensus from the prominent Albertans who spent the day hashing out the province's spending and revenue issues.
But the call of many participants to introduce a provincial sales tax left lingering questions from the opposition parties about the Tory government's intentions around a consumption tax.
The focus of the summit — called by Redford because the province is dealing with a major revenue shortfall due to lower-than-expected energy prices and a deep discount for Alberta bitumen — was the long-term future of the province's economy, not the March 7 budget.
Speaking to reporters following the seven-hour conference at Mount Royal University, Redford said she was intrigued by suggestions around increased delivery of services by the non-profit sector and greater use of public-private partnerships (P3s), as well as the emphasis on gaining new market access for Alberta energy.
She said the repeated emphasis on a sales tax by many panellists did not necessarily point the direction the province will ultimately take.
"I also heard a lot today about spending cuts, I heard about reducing provincial income tax or eliminating provincial income tax, reducing corporate tax," said Redford.
"Do we need to have a conversation about revenue? I don't know the answer to that yet. But I think there's a lot of smart people engaged in that room who want to keep having that conversation. We're going to keep talking to Albertans."
The summit saw over 350 Albertans from academia, the business community and the non-profit sector — as well as MLAs from all parties in the legislature — in attendance. The event was also streamed online and Redford touted the social media success of the summit, noting in her closing address that 72,000 individual Twitter accounts used the hashtag #absummit.
The event saw four five-person panels discussing the state of the provincial economy, the public's expectation of services, Alberta's revenue mix and the government's spending habits.
Many of the panellists argued for a consumption tax even if they differed over whether the province's $40-billion budget is out of line.
George Gosbee, president and CEO of AltaCorp Capital, said the province could no longer rely on natural resource revenues to pay for programs and government should introduce a five per cent sales tax, as well as consider bringing back the health-care premiums scrapped by former premier Ed Stelmach.
"We had a free ride and we had a great ride. Now's the time to get off of it," Gosbee said.
Other panellists who advocated a consumption tax included the former dean of the University of Alberta business school Mike Percy, interim dean Joseph Doucet and AIMCo CEO Leo de Bever.
Jack Mintz, director of the University of Calgary's School of Public Policy, said Alberta has a spending problem but does need a fundamental reform of the tax system.
He said a sales tax harmonized with the federal GST would be more efficient and should be introduced with the aim of gradually eliminating the provincial income tax entirely.
But Derek Fildebrandt of the Canadian Taxpayers Federation doubted the possibility of a revenue-neutral sales tax being implemented in the province and suggested the Tory government would face an electoral revolt if it introduced a PST.
"The government has no mandate to bring in a sales tax," he said.
"The premier, I imagine, likes her job in government."
Redford has said the government faces a $6-billion shortfall in revenue in 2013-14 because a glut of oil in the United States has depressed the benchmark West Texas Intermediate price of oil and widened the differential in price between WTI and Western Canadian Select, which includes Alberta bitumen.
The government has made gaining access to new markets, particularly in Asia, its priority. That means the provincial go-ahead for pipeline proposals such as the Keystone XL line to the U.S. Gulf Coast, Northern Gateway and an expanded Trans-Mountain pipeline in British Columbia, and a reversed line to Eastern Canada.
However, all those projects face fierce opposition because of the environmental impact of the oilsands.
Jim Prentice, a former federal Conservative cabinet minister who is a close ally of Redford, said in his keynote address that "energy leadership and environmental leadership are now two sides of the same coin."
"We will either be an environmental leader or we will have other jurisdictions dictate our environmental policies, dictate our energy policies and dictate the markets we are able to access," he said.
The tone of the debate was always civil but the most striking differences were seen on the last panel of the day, which dealt with government spending.
Tom Flanagan, the University of Calgary political scientist who managed the Wildrose campaign in the spring election, said the solution to the government's financial woes could be found 20 years ago.
The cross-the-board cuts of Premier Ralph Klein and Finance Minister Jim Dinning in the early '90s balanced the province's books and set the stage for the province's economic boom, he said.
But Gil McGowan, president of the Alberta Federation of Labour, said the Klein-era cuts devastated the province's infrastructure and services.
"Albertans are willing to make tough sacrifices when necessary. We're prepared to take it on the chin when we've been convinced it's the right thing to do, he said.
"But allowing yourself to get punched in the face when it's not necessary is not brave and it's not noble. It's stupid."
Wildrose Leader Danielle Smith said she was pleased overall with the summit and noted that most Albertans would have found at least one or two panellists they agreed with.
"I was disappointed to see how often the conversation turned to this being a revenue problem and the solution being either taking out debt or raising taxes," she said.
"I don't support a sales tax because it is regressive. It actually does hit the lowest income people the hardest."
NDP Leader Brian Mason was more blunt, suggesting the summit had been "stacked" to deliver a message favouring a sales tax and pipelines.
"But we didn't learn what it was that created the dependence on royalty revenue in the first place, which was of course cuts to income tax for the wealthy and for corporations. That didn't even come up," said Mason, who noted there was also little discussion about increasing refining in the province to deal with the differential issue.
"My sense is that they're trying to set the stage for a sales tax, which is not something we support."
The Calgary Herald, Monday, Feb. 11, 2013
Byline: James Wood
CALGARY - Premier Alison Redford's first economic summit primed Albertans for a consumption tax, foreshadowed coming service cuts and reiterated the need to access new markets for oilsands products.
Virtually all of the economists at the Saturday summit in Calgary agreed a sales tax makes financial sense for Alberta, either because it will lower personal and corporate taxes, or because it will underwrite government spending.
That led critics to conclude the panels were "stacked" in favour of the government's existing agenda, but Redford said only that she will continue to engage with Albertans on the issue.
"I think it's really important to talk to Albertans about (the idea of a sales tax)," Redford said. "One of the other things a lot of people in the room said was that even before you start having a conversation about this, you have to understand what the fundamentals are."
Under Alberta law, a referendum would be required before the government could implement a tax. Asked if it's time for a referendum, Redford said: "I don't think we're anywhere near that at all. I think the fact that people are beginning to think about it and talk about it as an idea is a really important thing. ... No need to jump the gun."
Redford said more than 70,000 people engaged in the discussion through the online social media network Twitter. Roughly 300 people attended the summit in person, including most Tory MLAs and members of Redford's inner circle.
Redford listened to all the panels and said afterward she took particular interest in discussions about increased use of public-private partnerships and the notion that assuming low-interest debt is a worthwhile risk to build public infrastructure.
"This isn't about incurring debt, this is about assuming risk," Redford said. "These are still assets that continue to be publicly owned, but they allow us to build them in an effective way."
Redford also took note of the role not-for-profit agencies play in the service delivery, and touted her Canadian Energy Strategy.
Opposition parties said Redford is laying the groundwork for a sales tax.
Wildrose opposition leader Danielle Smith said she was disappointed the conversation turned so often to the idea that Alberta has a revenue problem and should either take out debt or raise taxes.
"I'm very worried that what we're going to see is that this is laying the table to try to soften the ground for tax increases in future years, and I don't think that's what Albertans want."
Smith said a sales tax will hit low-income Albertans hardest.
Alberta NDP Leader Brian Mason was disappointed nobody talked about the need to upgrade bitumen in Alberta and that economists talked almost exclusively about a sales tax, not about increasing taxes on corporations and wealthy Albertans.
"My sense from this is that those panels were stacked with people who wanted to have a sales tax," Mason said. "It was not unanimous, but it was pretty close. And nobody talked about a progressive income tax, nobody talked about making sure the wealthiest in our society pay their fair share.
"I think the government ... is trying to set the stage for a sales tax, and that's not something we support, because it is a more regressive tax, because it doesn't tap into the wealth that is there."
Several prominent Alberta economists and business leaders called for a sales tax, including the University of Alberta's Joseph Doucet, AIMCO's Leo de Beaver and AltaCorp CEO George Gosbee, who advocated a five-per-cent sales tax.
Jack Mintz, chair of the University of Calgary's public policy school, said the province should levy an eight-per-cent consumption tax and the money collected should be used to offset personal income and corporate taxes.
"The art of taxation is plucking the goose with the least amount of hissing," Mintz said, adding the case for a sales tax is a "slam dunk."
In the final session, panellists discussed Albertans' expectations, and talk turned to cuts.
University of Calgary professor and Wildrose strategist Tom Flanagan said the best solution is Ralph Klein-style budget cuts.
"Politically, the only thing that works is virtually across the board," Flanagan said. "I'm talking about fairly drastic action ... what you have to do to bring your budget back into line."
Alberta Federation of Labour president Gil McGowan objected.
"We've seen this movie, and it was a horror story," McGowan said. "It vaporized an entire generation of nurses and teachers ... and created an infrastructure deficit that undermined the productivity of our private sector.
"Haven't we learned anything?"
Calgary Herald, Sunday, Feb. 10, 2013
Byline: Karen Kleiss, Edmonton Journal
With academics and everyone but the Tories themselves realizing that the government is too dependent on energy royalties, it was obvious Saturday's economic summit was little more than a feel-good exercise. Even the government itself said the meeting was a conversation about the direction Alberta needs to take moving forward and wasn't likely to shape next month's budget.
But of all that was said at the meeting, the best wisdom was expressed by the president of the Alberta Federation of Labour.
"Albertans are willing to make tough sacrifices when necessary. We're prepared to take it on the chin when we've been convinced it's the right thing to do," said Gil McGowan. "But allowing yourself to get punched in the face when it's not necessary is not brave and it's not noble. It's stupid."
McGowan's remarks appear to be in response to comments made by Tom Flanagan, who pointed out that the across-the-board cuts of Ralph Klein in the early 1990s balanced the province's books and set the stage for Alberta's economic boom.
Conservatives should heed what McGowan has to say, but instead, agree we shouldn't take tax increases on the chin while the budget has all but doubled in the past decade and a University of Calgary report found that 95 per cent of the increases in revenues during the same period were swallowed up by the public sector.
McGowan is right: we'll make sacrifices when necessary. But the fact the government can't do its job is no reflection on ordinary Albertans, who provide the highest tax contributions per capita in the country.
The Calgary Herald, Sunday, Feb. 10, 2013
CALGARY - Alberta Premier Alison Redford says a sales tax isn't on the agenda, even though many of the panellists at an economic summit that her government convened Saturday said it could be one solution to the province's fiscal woes.
"Oh, I don't think we're anywhere near that at all. I think the fact that people are beginning to talk about it as an idea is a really important thing," Redford told reporters after the day-long event.
"Ideas are important, but no need to jump the gun on that."
By law, Albertans would need to vote on a provincial sales tax through a referendum.
Alberta has prided itself for decades on being the only province not to have a sales tax and Albertans were amongst the most angry when the Conservative government of Brian Mulroney brought in a federal sales tax in the 1990's; two Tory MPs from Alberta left the Conservative caucus in protest.
Redford's government has said it faces a $6-billion oil and gas revenue shortfall, mainly due to the inability for Alberta crude to access markets that will pay the best price.
Among the business people, economists and academics in favour of bringing a sales tax to Alberta were George Gosbee, CEO of investment firm AltaCorp Capital, and University of Calgary tax expert Jack Mintz.
"It's my view that we don't have a cost problem, we have a revenue problem," Gosbee, who said spending cuts would be "draconian."
Gosbee said he's also in favour of bringing back health care premiums.
Mintz said Alberta's challenge has more to do with spending than it does revenue, but that it has a "tax mix problem" as well.
He said the province relies too much on "harmful and volatile" sources of revenue.
Mintz advocates switching from income to consumption-based taxes, whether that's through user fees, excise taxes or a sales tax.
"Many Albertans believe that having no sales tax is a tax advantage. It is the opposite. Not having a sales tax is a disadvantage in today's global economy," he said.
He added U.S. state governments that have low income taxes but have a sales tax, such as Texas, are seeing stronger economic growth.
Danielle Smith, leader of the right-wing opposition Wildrose Party, said she was disappointed to see how much revenues dominated the day's discussion, whether it was through taxes or debt. Some panellists said low interests rates make borrowing money a good option.
"I'm very worried that what we're going to see is laying the table to try to soften the ground for tax increases in future years. I don't think that's what Albertans want," she said.
"I don't think that's what they voted for in the last election."
NDP Leader Brian Mason said the economic summit did little to address the underlying issues plaguing the province.
"We didn't learn what it was that created the dependence on royalty revenue in the first place, which was of course cuts to income tax for the wealthy and for corporations. That never really came up. We were just into a sales tax all of a sudden," he said.
"My sense from that was that those panels were stacked with people who wanted to have a sales tax. It was not unanimous but pretty close and nobody talked about a progressive income tax, nobody talked about making sure that the wealthiest in our society pay their fair share."
Derek Fildebrandt, Alberta director of the Canadian Taxpayers Federation, said spending has increased 25 per cent over the last decade, adjusted for inflation and population growth, even though revenues have increased 21 per cent over that same time period.
"It is precisely our unwillingness as a province to hold spending increases to a reasonable level that has resulted in expenditures outgrowing revenues," he said.
Tom Flanagan, a University of Calgary political science professor who led the Wildrose campaign in the last election, said spending cuts are something concrete that can be done today, and that revenue is more of a long-term matter.
In order to be politically palatable, those cuts would have to take place across the board, Flanagan said when panellists were pressed on what spending they'd target.
Alberta Federation of Labour leader Gil McGowan said Albertans would be willing to make sacrifices in tough times — but he's not convinced times are all that tough and that spending cuts are necessary.
"Allowing yourself to get punched in the face when it's not necessary is not brave and it's not noble, it's stupid," he said, asking if Alberta "learned anything at all" from spending cuts during the tenure of former premier Ralph Klein.
"We've seen this movie and it's a horror story."
The economic summit, Redford said, was not meant to deal with the upcoming March 7 budget, but have a more forward-looking view.
Victoria Times Colonist and The Canadian Presss, Saturday, Feb. 9, 2013
Byline: Lauren Krugel
Federation president to set the record straight on bitumen glut
Edmonton – AFL president Gil McGowan will be tackling Alberta’s revenue problem this Saturday at the Alberta Economic Summit.
The summit will bring together industry, not-for-profit leaders, academics and government members to discuss Alberta’s economic future in light of the current low price of bitumen. McGowan will use this opportunity to ensure revenue reform and oil royalties are part of the discussion on how to tackle the deficit.
“In the debate so far, we’ve heard a lot of misinformation, some obfuscation – and even outright lies,” McGowan said. “Our economy is red hot. Balancing the budget should not be difficult, unless you’re either being deliberately dishonest, or you’re just bad at math.”
McGowan noted that Alberta does not spend more than other provinces on services, and when looking at expenditures on public services as a percentage of the economy, actually ranks dead last in Canada.
“We need to make sure that revenue is part of the discussion,” McGowan said. “By the government’s own numbers, we could collect $10 billion more in taxes and still be the lowest taxed province in Canada. We could use that $10 billion to protect and strengthen public healthcare and education.”
The summit, which will be held at Mount Royal University in Calgary, will involve four moderated panels. McGowan has been asked to participate in the moderated panel on “Balancing Expectations on the Services Albertans Need.” He notes that the ‘Services Albertans Need’ are already understaffed — Alberta has nearly the fewest public employees per capita in the country.
“It’s childish to think that Alberta can maintain good public services without having a revenue base to pay for them,” McGowan said. “That means royalty reform and it means returning to a progressive income tax like Alberta had before 2001.”30-
AFL Factsheet: “Revenue, spending, and public-sector wages”
Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].
CALGARY - The inability to get western Canadian crude to the right markets is costing the country's economy dearly, according to a new report paid for by the Saskatchewan government.
Each stalled pipeline project means a loss to the Canadian economy of between $30 million and $70 million every day, said the report penned by the Canada West Foundation, a Calgary-based think-tank.
"The economic impact is just devastating," foundation CEO Dylan Jones said in an interview Thursday.
The Saskatchewan government paid $50,000 to commission the report.
Premier Brad Wall has been an outspoken supporter of new pipeline projects, most recently signing a letter, along with 10 U.S. governors, urging U.S. President Barack Obama to approve the Keystone XL pipeline.
Alberta's oilsands, the third-largest reserves on the planet, get most of the attention when it comes to the pipeline debate.
But Saskatchewan, which has considerable oil resources of its own, is affected by the pipeline pinch as well, Wall said in Regina.
"We hope that this helps get the message out, even to a greater degree than it is now, that we have a pipeline capacity issue in western North America and that's costing Saskatchewan people a lot of money," he said.
"Because of the pipeline capacity issue, we're losing up to 19 to 20 per cent return on the taxpayer's resource."
In recent months, oilsands crude has been trading at a painfully steep discount to both U.S. and global light crude benchmarks. It's a trend that has both eroded oilpatch profits and caused the Alberta government to warn of a $6 billion revenue shortfall this year.
At the heart of the problem is a lack of adequate pipeline capacity to get that crude to the markets that want it most. Proposals of eastbound, westbound and southbound pipelines are in varying stages of development, but environmental opposition and political wrangling makes their fates uncertain.
Most pipeline capacity out of Western Canada heads to the U.S. Midwest, which Jones calls "the worst place in the world to be selling oil" as booming production from areas like North Dakota floods the market.
The Canada West Foundation says new pipelines need to be built in the right directions.
A massive expansion to Trans Mountain and Enbridge's Northern Gateway proposal would enable crude to be transported to Asia via tankers from the West Coast, but they face stiff opposition within B.C. on environmental grounds.
TransCanada Corp. is awaiting final U.S. government approval for the northern leg of its Keystone XL pipeline, which would allow Canadian crude to flow to refineries on the Gulf Coast that are thirsty for heavy oil. Construction on the southern leg between Oklahoma and the Gulf is underway.
Refineries in eastern Canada and the U.S. Eastern Seaboard rely on pricey imported crude from overseas, which is hurting their economics. Both TransCanada and Enbridge have projects in the works to send western crude eastward through reconfigured pipes that are already in the ground. It's possible those lines could extend all the way to New Brunswick, home to Canada's largest refinery.
"If pipeline project proposals such as Trans Mountain, Keystone XL and Northern Gateway don't move forward, Canada will be foregoing $1.3 trillion in economic output, 7.4 million person-years of employment and $281 billion in tax revenue between now and 2035," said Michael Holden, the foundation's senior economist and author of the report.
While most of the benefits would accrue to Alberta, Holden said those three projects would add a combined $84 billion to economies elsewhere in Canada.
The report calls on provinces to work together to tackle the problem, the way Alberta Premier Alison Redford and New Brunswick Premier David Alward did earlier this week in touting an eastbound oil pipeline.
Keith Stewart, climate and energy campaign co-ordinator at Greenpeace, says the Canada West Foundation report "misses the point."
"If we want to avoid climate chaos, we have to stop building fossil fuel infrastructure like new tar sands pipelines," he said.
"Canada can, and should be a winner by building the climate-safe, green energy economy that our kids need and deserve."
The Alberta Federation of Labour also has a different view of the issue.
The group said in a report earlier this week that Alberta should require energy companies to upgrade oil in the province before they are allowed to ship it.
Federation president Gil McGowan said the Alberta government continues to approve in situ oilsands projects without requiring associated upgrading, which converts bitumen from the oilsands into light oil refineries can use. That's flooding the U.S. market and driving down the price.
Environmental opposition has been particularly strong to pipelines that would ship oilsands bitumen, the thick, tarry stuff that needs to be diluted in order to flow.
And that alone might force governments to take a hard look at upgrading and refining opportunities at home, said Wall.
"There's all manner of politics, some of it based on reality, some of it not," said Wall.
"If we can't get pipelines built because of it, we just have to start not moving bitumen, but moving a refined product."
Times Colonist, Thursday, Feb. 7, 2013
Byline: Lauren Krugel, The Canadian Press with files from Jennifer Graham in Regina
Alberta's current financial woes may offer a silver lining, says the Alberta Federation of Labour. Two weeks after Premier Alison Redford warned the province that resource royalties were expected to drop by $6 billion in the next fiscal year, AFL President Gil McGowan says Alberta's "bitumen bubble" could provide an opportunity for increased upgrading and refining jobs in Canada.
"The price of bitumen is low right now because we're flooding the market with bitumen," says McGowan.
"The solution they're proposing is building more pipelines to flood the market even further. That's just not how markets work," he said. "We need to refine the bitumen here, so that we're selling what the international markets want: synthetic crude."
McGowan justifies his arguments with a 2011 internal government report the labour group obtained through a Freedom of Information request. The report shows that the price difference between Alberta's heavy oil and the benchmark West Texas Intermediate grows, resource projects that both mine and upgrade bitumen locally become economically viable, while only mining becomes less economically beneficial.
"These documents paint a picture of a government that knows what needs to be done, but is afraid to act," said McGowan. "This 'bitumen bubble' has a silver lining, and the province knows it. They wrote the documents to prove it."
There are currently seven pipelines that carry oilsands crude to markets outside Alberta, with the majority heading to the U.S. Midwest.
The AFL, and several other Canadian labour groups, have argued against the proposed Keystone XL and Northern Gateway pipelines, instead favouring more domestic refining and upgrading operations. The AFL argues that building more refineries in Alberta, instead of relying on refineries in the U.S. and Asia, will create more long-term jobs and net better value for the oilsands, since the refined product garners a stronger price.
However, the day before the AFL released their documents, Suncor Energy announced its planned Voyageur upgrading project might not happen due to decreased demand for Canadian crude. A decision regarding the project will not be made until the end of March.
At the same time, North West Upgrading Inc. has partnered with Canadian Natural Resources Ltd. to build the $5.7-billion Sturgeon upgrader and refiner. The plan will provincially-owned bitumen to privately-owned refineries. The Sturgeon project will be the first refinery to be built in Alberta in approximately 30 years.
"By not requiring upgrading in Alberta, we're pumping out more of the wrong thing," McGowan said. "We're shipping good oilsands jobs elsewhere, when the economics of upgrading make a lot more sense."
Fort McMurray Today, Thursday, Feb. 7, 2013
Byline: Vincent McDermott