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
With all the discussion recently over the lack of so-called value-added jobs, one might wonder why that debate is confined to one sector of the economy.
For example, in 2010-2011, Canada exported more than 12 million tonnes of wheat. Also in 2011, a $100-million bread plant opened in Hamilton, Ont., bringing about 300 new jobs to that city. Presumably, more of that wheat could be "upgraded" here at home, thus creating more of the kinds of jobs that the Hamilton plant is providing.
The same could be true of the billions of dollars worth of lumber exports produced by Canada each year. Surely, we could provide a multitude of jobs in the production of kitchen tables and baseball bats by discouraging the export of such raw materials.
Fortunately, there are no serious calls for such interference in the economy — at least in those sectors. When it comes to the export of raw bitumen, though, there's no shortage of such calls.
With the price differential for Western Canada Select (as measured against the price for West Texas Intermediate) oil having a significantly negative effect on Alberta's bottom line, there have been demands for a government strategy to encourage more upgrading and refining in our province.
First of all, it should be noted that there is a great deal of such activity that already occurs. As a report last week from the Canada West Foundation notes, there are eight refineries operating in Western Canada — three of them are in Alberta, representing almost two-thirds of the West's refining capacity.
Additionally, there are five upgraders in Alberta, and in fact, upgrading capacity in Alberta more than doubled from 2001 to 2011. That doesn't include the recent expansion of Shell's Scotford upgrader, and there is also the massive $5.7-billion North West Upgrader, which has just recently been approved.
So when the Alberta New Democrats and the Alberta Federation of Labour seize upon government documents as proving a "strong economic case" for more upgrading capacity, they overlook the fact that some companies have already made that bet.
But the decisions being made in the here and now tell a different tale.
Just last week, we learned that Suncor's proposed $11-billion Voyageur Upgrader project is in serious jeopardy. The project has already been on hold for the past three years, and Suncor has confirmed that cancellation is now one of the options it is considering.
Suncor's struggle illustrates the weaknesses and challenges in the economics of upgrading that the Canada West Foundation addresses in its report. There is surplus refining capacity elsewhere. There is falling demand for refined petroleum products. There is also, of course, massive upfront capital costs that are coupled with low returns.
If indeed there is a "strong economic case" for building new upgraders and refineries, then it does not follow that industry would need to be bribed, cajoled, or threatened into acting on it. True evidence for a strong economic case lies not in the analysis contained within some government document, but rather the actual investments being made by the private sector. Like, for example, the investments in new pipelines.
As University of Alberta economist Andrew Leach wrote last year, if we want more refining capacity, it's likely to come at the government's expense. He then frames the issue thusly, "should we be willing to subsidize ... upgraders and refineries in this country in order to export a higher value end product?"
To look at it that way illustrates for us how this notion of "value-added" is really a reallocation of the value that already exists in the resource.
Why should we value refinery construction jobs over pipeline construction jobs? Why are jobs at new upgraders more important than jobs in existing and new oilsands projects?
Both the Canada West Foundation analysis and a separate study last week from the U of C's School of Public Policy illustrate the importance of additional pipeline capacity. Delays in proposed new pipeline projects are costing the economy millions of dollars daily.
Even if we were to do more upgrading here, we'd still need pipeline capacity to get that product to market.
The evidence is clear: Alberta needs more pipelines, not more pipe dreams.
The Calgary Herald, Monday, Feb. 11, 2013
Byline: Rob Breakenridge
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@example.com.
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
CALGARY - A research paper is reinforcing the idea that Canada's resource industry is at risk of being left behind internationally if it doesn't find a way to get oil to receptive markets in the Pacific Rim.
The report from the School of Public Policy at the University of Calgary says demand for heavy oil from Alberta's oilsands lies primarily in southeast Asia, but warns the window of opportunity will begin to close.
Author Michal Moore says Canada needs to find a way to get into those markets in the next two to five years.
"If we can get our products into the market in that stream we're going to be competitive," Moore, a professor of energy economics at the school, said Wednesday when the paper was released.
"The equivalent of being late is you have to take a bigger and bigger discount on your product, or switch and start supplying a more higher valued-added product."
The Alberta government has turned up the volume in recent weeks about the hole the oilsands oil discount is eating in the province's bottom line. Premier Alison Redford has warned of a $6-billion revenue shortfall this year because oilsands crude has been fetching a significantly lower price than the U.S. and global benchmarks.
She's also referred to the buildup of crude in Alberta as customers get a cheaper product elsewhere as a "bitumen bubble."
Moore says competition is an issue for Canada.
"There's a lot of that oil out there in the market. There's plenty of capacity in the Pacific Rim/Asian markets for heavy oil like ours, but it's not infinite and it's certainly competitive."
Maya heavy oil from Mexico and Arab Heavy are very close to Alberta's product in weight and sulphur content, Moore said.
The challenge becomes getting Alberta oil to ports so it can be loaded onto ships and sent to willing customers in China, Japan or Korea. Moore said the most cost-effective way of doing that is through pipelines, but delays in the proposed Northern Gateway project to the West Coast present a problem.
Some Alberta heavy oil is already being processed at refineries in California. Moore also pointed to the possibility of shipping Alberta oil eastward to New Brunswick. And there is talk of a rail link to a port in Alaska.
New Brunswick Premier David Alward was in Alberta this week and said he'd welcome a pipeline carrying oilsands bitumen to the 300,000-barrel-per-day Irving Oil refinery in Saint John - the largest in Canada - with the possibility of exporting some of that crude by tanker.
But the Alberta Federation of Labour says Alberta should require energy companies to upgrade oil in the province before they are allowed to ship it.
Citing an Alberta Energy Department analysis obtained under freedom of information laws, the group argued Wednesday that oilsands mining projects with upgraders will become hugely profitable as the light-heavy oil price differential expands.
Federation president Gil McGowan said the Alberta government continues to approve in situ oilsands projects without requiring associated upgrading, which is flooding the U.S. market and driving down the price.
"These projects become less economically viable as the price difference between bitumen and crude expands," McGowan said in a release.
"And yet these projects have mushroomed throughout the province. We are flooding the market, and these documents show that the government knows it."
Alberta NDP Leader Brian Mason said the government's refusal to increase Alberta's upgrading capacity is part of a "bitumen bungle."
"Here we have a clear message from the market, from industry, from policy analysts and from the government's own research, yet Redford continues to bury her head in the oilsands and stubbornly insist that we can only talk about moving bitumen because that is what is in the ground," Mason said in a release.
Lethbridge Herald, Wednesday, Feb. 06, 3013
Byline: Bill Graveland, The Canadian Press
AFL to release Government of Alberta analysis of bitumen economy
Edmonton – Secret government documents that show upgrading is economically viable will be released by the Alberta Federation of Labour at 10 a.m. on Wednesday, Feb. 6.
The documents, which were obtained by the AFL under the Freedom of Information and Privacy Act, include a Department of Energy analysis that deals with the economics of the energy industry. This analysis of taxes, royalties and upgrading policy was deemed 'secret' by the Government of Alberta.
"These documents paint a picture of a Government that knows what needs to be done, but is afraid to act," AFL president Gil McGowan said. "This 'bitumen bubble' has a silver lining, and the province knows it – they wrote the documents to prove it. Now they just need to have the courage to follow through on the evidence of their own research."
Who: Alberta Federation of Labour President Gil McGowan
Where: River Valley Room, Lobby Level,
Crowne Plaza Chateau Lacombe Hotel
10111 Bellamy Hill Rd NW, Edmonton
When: Wednesday, Feb. 6, 2013 at 10 a.m.
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email firstname.lastname@example.org.
The time is right for Alberta to profit from bitumen's low price by processing more of it at home, say the province's unionists.
The so-called bitumen bubble makes it economically feasible for more local processing, which would create tens of thousands of jobs rather than piping them — and oilsands product — to the U.S. And China, Alberta Federation of Labour President Gil McGowan said in Calgary Wednesday.
"We should be taking advantage of this moment in time instead of wringing our hands over the price differential," McGowan said in the lobby of the Palliser Hotel, normally the domain of kibbitzing energy sector brass.
He said the energy industry itself has long embraced the theory and with the price differential only widening recently, it makes even more sense to add value to taxpayer-owned resources.
"Why would we accept 30 percent of the the value when we could get 70 percent?" said McGowan.
"We have to starting acting like the owners of our resources."
He also said the province needs to emulate the Lougheed Tory government of the 1970s by creating a publicly-owned company to encourage such activity.
"Alberta is the only major oil producing jurisdiction that doesn't have its own champion in the industry," said McGowan, adding former Newfoundland Premier Danny Williams has followed Lougheed's example.
The province's attempts to realize a world market price for bitumen have failed miserably, he said, and will continue to.
"We'll never get a world price because bitumen is not oil...we should start using policy levers to make sure we're upgrading here," he said.
McGowan noted that about 50% of the province's extracted bitumen is processed in Alberta — a number, he said, that's expected to drop.
While it's true the price differential makes refining more feasible, the increasing production of the rival light crude in the U.S. undermines that argument, said energy analyst Jackie Forrest.
"It has merits in the short term but now we have a domestic oil boom in the U.S. and that means Canadian light crude is going to need new markets," said Forrest, a director with energy consultant IHS CERA.
That means more pipeline capacity would be needed to reach those new markets, she said — west coast routes facing increasing resistance in Canada.
As for government involvement in refining, the weak economic merits would demand considerable taxpayer investment at a time of squeezed budgets, said Forrest.
"Because it's pretty challenging for the economics, upgraders in Alberta would take a lot of government support," she said.
Labour to build the refineries would divert already scarce workers from other royalty-generating sectors of the industry, she said.
"You could argue that's not the case with job creation, given the labour constraints in the province," said Forrest.
Calgary Sun, Wednesday, Jan. 30, 2013
Byline: Bill Kaufman
When Premier Alison Redford talks about "a bitumen bubble," she's referring to the record amount of Alberta bitumen for sale, and the low price it's fetching in the U.S. these days.
That is partly because of competition from new supplies of higher quality crude oil from the U.S.
The price of bitumen dropped another $20 a barrel this month, so Redford's treasury will be short $6 billion by the end of next fiscal year.
Is this price gap between conventional oil and bitumen normal?
The fact is there has always been a gap between the North American price of conventional oil (West Texas International) and a barrel of sticky, thick bitumen, known as Western Canadian Select. (The world price, known as the Brent price, is another benchmark set by North Sea oil).
WTI is hovering around $95 a barrel, Brent slightly higher around $110, while bitumen, usually about $20-a-barrel less, dropped to $50 last month.
Bitumen fetches a lower price partly because it needs more upgrading before it can be turned into gasoline, says Michael Moore, energy expert in the University of Calgary's School of Public Policy. That costs money, so refineries won't pay as much for bitumen.
Usually the gap has hovers around 20-25 per cent, and in the last few months it went higher. But the gap has been higher in the past.
The lack of pipeline capacity makes it more difficult to get bitumen to market and using rail is expensive, says Moore. But there are other challenges, he adds.
The new supplies of lighter, easier-to-use oil from North Dakota are more attractive to refiners.
Then, not all U.S. refineries can handle bitumen, says Moore. Alberta bitumen has to get to specially adapted refineries on the U.S. Gulf coast.
But there's competition at those special refineries too - from heavy oil from Venezuela and Mexico which can get there cheaper, says Moore.
"So the refiners call the shots and they establish the discount. Our oil always had to go a long way and takes more processing."
So will more pipelines help?
Yes, the Keystone pipeline to the U.S. Gulf coast will be a big help, says Moore - "though we will still be trading in competition with other heavy oil like ours from Mexico. Right now, there's a lot of competition."
Gil McGowan of the Alberta Federation of Labour says there's no doubt Alberta is facing a glut in the oil market and that puts downward pressure on the price of bitumen.
The low price is a sign the market doesn't want to buy more Alberta bitumen, he says. The better solution is to upgrade the bitumen into synthetic crude in Alberta, "so we can sell a product the market wants."
"For Redford to suggest the only solution is to build more pipelines is not only simplistic, it is misleading. There are many other options," McGowan said.
Synthetic crude (upgraded bitumen), produced by a handful of oilsands companies, can be used in any refinery to make jet fuel or gasoline and it has occasionally fetched higher than the WTI price of oil, he noted.
U of C economist Ron Kneebone said the government has created its own problems by continuing to rely on volatile oil and gas revenues - despite frequent warnings from economists and its own advisers.
Calgary Herald, Wednesday, Jan. 30, 2013
Byline: Sheila Pratt, Edmonton Journal