Nurses, teachers, health sciences professionals, and public employees urge government to listen to majority of Albertans
Edmonton - Labour leaders are standing up for the majority of Albertans who do not want to see public services cut on March 7.
At a joint press conference on Monday, March 4, at the Crown Plaza Hotel in Edmonton, the presidents of the province's six largest public sector unions and associations urged Alison Redford to listen to Albertans, most of whom want their public services protected. The Alberta Federation of Labour, Alberta Teachers' Association, Alberta Union of Provincial Employees, Canadian Union of Public Employees-Alberta, Health Sciences Association of Alberta and United Nurses of Alberta have decided to join their voices together to send a clear message about the upcoming budget.
Polling, conducted by Environics from February 14-21, shows that more than 70 per cent of Albertans reject the idea of cuts to public services. More than three quarters of those polled agree that there should be an increase on taxes for the wealthy and corporations.
Far from thinking the government should cut public services, the majority of Albertans believe we should be investing more in health care, education, and other services. Albertans see a growing province, a booming economy, soaring corporate profits and low unemployment, and they're confused as to why health care, education, and community services still don't have the resources they need to do the job right.
Albertans were clear in their message that they support the need for some increased revenues, but that they reject the idea of a sales tax. Only 17 per cent of those polled were in support of a provincial sales tax, 72 per cent said they would be in favour of returning to a progressive income tax, and 77 per cent were in favour of increased taxes on corporations and those who make more than $200,000 per year.
When asked about spending, respondents identified several priorities: Creating a provincial strategy for long-term care for seniors was a high priority for 70 per cent of respondents, while protecting publicly-funded health care against for-profit health care was identified as a high priority by 57 per cent. Nearly half of respondents said that hiring more teachers and support staff for elementary and secondary schools was a high priority.
The government is trying to justify massive cuts to health care and education by saying oil prices have dipped. Albertans aren't buying it. Albertans know a growing economy needs adequate investment in public services.
Because labour leaders were concerned about the direction that budget discussions had been going, they commissioned a poll by Environics Research Group to find out what Alberta are looking for. The poll, which surveyed more than 1,000 Albertans, is considered to have a margin of error of +/- 3.1, with a 95% confidence level.
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email email@example.com.
In front of a government panel on Tuesday, a labour group argued in favour of increasing refining operations in Alberta, instead of sending unprocessed bitumen to foreign refineries.
Alberta Federation of Labour president Gil McGowan told the province's Standing Committee on Alberta's Economic Future that upgrading bitumen locally should be a top priority for resource development and job growth.
The committee was debating whether or not Alberta should renew the Bitumen Royalty in Kind program, where the province receives oil from producers instead of royalties and then uses that bitumen to feed upgraders.
Under BRIK, the program has created capacity to upgrade up to 75,000 additional barrels per day. Established by former premier Ed Stelmach in 2007, Stelmach pledged to upgrade 72% of Alberta's bitumen locally by 2016.
Although a new, $5.7 billion refinery is currently being built near Redwater, no new refinery has been built in Alberta since 1984, despite the sudden demand for Canadian oil.
A refinery that would have been operated by several First Nations bands was dismissed by the government in early 2012, after the project's proponents failed to impress the province with their business model.
There is also talk about creating a pipeline linking the oilsands to refineries in Ontario, Quebec and New Brunswick. However, McGowan and the AFL have focused most of their criticism towards pipelines that aim to send bitumen to foreign refineries.
"This is the time to be investing in the long-term prosperity of this province," said McGowan. "75,000 barrels per day may sound like a lot, but it's really little more than a drop in the bucket."
The AFL has continually argued against projects like the proposed Northern Gateway and Keystone XL pipelines. McGowan says most of the jobs created would be short-term, temporary jobs and would only provide job growth to refineries in the United States and Asia.
Government reports obtained by the AFL through freedom of information requests show exporting bitumen provides a 35% return in value, while locally upgrading synthetic crude captures 70%.
After Premier Alison Redford told Albertans that the upcoming budget would see a $6 billion loss in resource revenue – a phenomenon she called a "bitumen bubble" – McGowan has repeatedly asked the province to look into domestic refining.
"The latest government projection is that we will only be upgrading 26% of our bitumen by 2020," said McGowan. "Something needs to be done to turn this ship around."
Although Redford told Albertans that her province would be facing "tough decisions" to solve the province's current financial woes, McGowan says the bitumen bubble may offer a silver lining.
"The price of bitumen is low right now because we're flooding the market with bitumen," McGowan told Today in early February.
"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."
Fort McMurray Today, Wednesday, Feb. 27, 2013
Byline: Vincent McDermott
Report says Alberta will be upgrading 26 per cent of bitumen by 2025
EDMONTON - A labour group on Tuesday urged a government committee to support construction of new upgraders to stop oil conglomerates who want to "rip and ship" Alberta's resources.
The Standing Committee on Alberta's Economic Future also heard from an industry group that said market forces alone should decide whether a new upgrader is necessary, and from a project proponent who would benefit from provincial support.
The committee is trying to decide whether the province should renew its commitment to the Bitumen Royalty in Kind Program, or BRIK, in which the province forgoes royalties in favour of bitumen and then uses that bitumen to feed upgraders.
Alberta Federation of Labour president Gil McGowan told the committee that upgrading bitumen in Alberta should be a condition of resource development, not an option, because it creates jobs and adds value in Alberta.
"It is our resource and it is we, the citizens of Alberta, who should be seizing the value opportunity, not some foreign-based energy giant," McGowan said. "It may make all sorts of sense ... for Exxon and Sinopec to rip and ship our raw resources, but just because it makes sense for them, it doesn't mean it makes sense for Albertans."
McGowan said Alberta has traditionally upgraded roughly two-thirds of its bitumen, a figure that will drop to 47 per cent by 2017, according to the Energy Resources Conservation Board. He said an independent consultant's report prepared for the province estimated that by 2025, Alberta would be upgrading just 26 per cent of its own bitumen.
Government reports obtained through freedom of information requests show exporting raw bitumen captures 35 per cent of the value, McGowan said, while upgrading to synthetic crude captures 70 per cent of the value and refining to diesel and jet fuel nets 100 per cent of the value.
"At the same time, there is compelling evidence that moving up the value ladder will also generate more revenue for government to help pay for things that Albertans need, like health care or education," McGowan said.
The BRIK program was developed in 2007, one year after former Premier Ed Stelmach famously said "shipping raw bitumen is like scraping off the topsoil, selling it and then passing the farm on to the next generation."
Stelmach pledged Alberta would upgrade 72 per cent of its bitumen by 2016. In May 2010, the province announced the first BRIK-backed upgrader would be built by North West Upgrading northeast of Edmonton.
The province initially backed a $6.6-billion refinery proposed by Alberta First Nations Energy Centre, but pulled support in February 2012. Teedrum president Ken Horn said the BRIK program could help make the First Nations refinery a reality.
"What is being considered in this room today is whether to introduce a second round of brick barrels under a request for proposals," Horn said, highlighting the economic benefits of the projects. "(The province is) facing a lot of challenges. ... These particular projects could yield a tremendous amount of money for the Alberta government."
Neil Shelly, executive director of Alberta's Industrial Heartland, said "overall, we think (BRIK) is a great long-term strategy for Alberta.
"It helps diversify our markets, it provides long-term stability in the future and it's definitely the role of government. When industry acts, they're acting on behalf of an individual company," Shelly said. "What may not make sense to an individual company may make sense to the province as a whole."
Emilson Silva of the University of Alberta School of Business said he believes the North West Upgrader should go ahead but doesn't think the market will support a second BRIK-backed upgrader.
Martyn Griggs of the Canadian Association of Oilsands Producers said the organization thinks BRIK is a good program but won't comment on whether implementing it is the right political choice for Alberta.
Patricia Nelson, vice-chair of the In Situ Oilsands Alliance, said if building an upgrader makes economic sense, the industry will do it.
"If it doesn't make sense, they will not. And I think you need to have some faith. We've had some pretty good ... trends with industry players here in Alberta making this a world-class place for energy development," Nelson said.
"So keep the faith."
The committee is expected to table its findings on April 30.
The Edmonton Journal, Tuesday, Feb. 26, 2013
Byline: Karen Kleiss
AFL to highlight advantage of in-province upgrading in presentation to Redford Government
Edmonton – Alberta Federation of Labour president Gil McGowan will promote the benefits of the bitumen bubble on Tuesday.
McGowan, who will be presenting to the Standing Committee on Alberta's Economic Future about the Bitumen Royalty In-Kind (BRIK) program, says that the bitumen bubble is an opportunity to create more in-province upgrading projects.
The BRIK program, which incentivizes in-province upgrading, is under the government's microscope this week as they consider how they intend to continue or expand it. McGowan, who will be speaking to the committee from 1:00 p.m. to 1:45 p.m. on Tuesday, will be available to media immediately after his presentation.
“This is the time to be investing in the long-term prosperity of this province,” Alberta Federation of Labour president Gil McGowan said, noting that the program has helped create capacity to upgrade up to 75,000 more barrels per day in Alberta. “75,000 barrels per day may sound like a lot, but it’s really little more than a drop in the bucket. Building Alberta's economic future requires more than just one BRIK.”
Under the BRIK program, the province takes its royalty payments from producers in bitumen, the thick, heavy oil squeezed out of the oilsands, rather than in cash.
“The governments own internal documents indicate that there is $72 billion in refining value being lost as a result of the current focus on raw bitumen exports,” McGowan said. “This is money the Alberta taxpayer could recover if we had an upgrading strategy. I'm glad to have been invited to speak on this subject — it gives me hope that the government might be taking in-province upgrading strategies seriously.”
Several times over the past decade, and under the leadership of three premiers, the Government of Alberta has promised to ensure at least 2/3 of Alberta's bitumen is upgraded in the province. At present, barely half of our bitumen is upgraded in-province, and the percentage is decreasing.
“The latest government projection is that we will only be upgrading 26 per cent of our bitumen by 2020,” McGowan said. “Something needs to be done to turn this ship around.”
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 firstname.lastname@example.org.
2013 Feb 26 Presentation to the Standing Committee on Alberta’s Economic Future on the Study of BRIK (Bitumen Royalty-in-Kind) Program
Gil McGowan, President
As elected officials from across the province, you all know that the majority of Albertans want to see more upgrading done within our borders.
You’ve seen the polls. And you’ve heard directly from your constituents.
In their hearts and in their guts, Albertans feel a strong need to move up the value ladder.
Albertans are saying “yes” to adding value and “no” to sending high-quality, high-paying jobs down the pipeline to places like the US Midwest, the US Gulf Coast and, in the future, to China.
The wishes and preferences of Albertans on this issue are clear.
But, we all know that public opinion isn’t enough. In order to become a reality, upgrading also has to pass the economic test.
On that score, the power players in the oil industry are on entirely different page than ordinary Albertans.
They say the numbers don’t add up for Alberta-based upgrading.
They put on their longest faces and sadly report that we have no choice but to get comfortable on the lowest rung of the value ladder.
They say that the case is closed.
But we at the AFL aren’t buying it.
I’m here today to challenge the industry’s conventional wisdom.
I’m here to say that the industry power players are wrong…and that the majority of supposedly ill-informed ordinary Albertans are right.
I’m also here to thank Premier Redford…but also to take her to task.
Albertans should thank her for drawing wide public attention to the whole concept of the differential between the price that’s paid for conventional oil and the price we get for bitumen.
The premier is right when she says that the differential is incredibly important to the future of the Alberta economy.
But she’s dead wrong when she says that a widening differential is a disaster for our province. The truth is that a wider differential dramatically improves the economics of upgrading and presents us with an opportunity to do exactly what they majority of Albertans want us to do – and that is, move up the value ladder.
To put it another way, the so-called bitumen bubble that has been inflated by the widening differential has a very significant silver lining. And if the goal of this committee and this government is to develop effective public policy, it’s a silver lining that cannot be over-looked or ignored.
For those of us in Alberta’s labour movement, the need for our policy makers to see and seize the opportunity presented by the widening differential is great. The need for policy leadership is great because, as a province, we are in the process of tumbling down the value ladder, rather than climbing up it.
This slide shows the reality we’re facing today. Throughout the 80s, 90s and well into this decade, we normally upgraded about two-thirds of our raw bitumen to synthetic crude. Former Premier Stelmach promised that his government would ensure that 70 per cent would be upgraded within the province. That’s why he established the BRIK program. But we’re moving in the wrong direction. Today, we upgrade only 58 per cent and the ERCB projects that by 2017, that figure will drop to 47 per cent.
Even worse, a report prepared last for the government by the consulting firm Wood MacKenzie projects that by 2025 Alberta will be upgrading only 26 per cent of our bitumen.
To be clear, no one is talking about shutting down existing upgrading or refining facilities. They’re all very, very profitable. In fact, there isn’t an upgrader or refinery in the country that isn’t making money hand over fist. Instead, the problem is that – with the notable exemption of the Northwest Upgrader and refinery – no new upgrading capacity is being added in our province. Virtually all of our province’s new oil sands production is going to be shipped out of the province in raw form.
Why is this a problem? It’s a problem because by shipping our bitumen raw, we’re letting literally thousands and thousands of good jobs slip through our fingers.
A single upgrader employs up to 2,000 people in direct operations positions. It also provides millions of man-hours of employment each year for construction workers doing regular maintenance and turnarounds.
In addition, as the Conference Board of Canada has pointed out, upgraders and refineries have incredibly long supply chains – so the spin-off affects to suppliers and local businesses are huge.
And these are temporary, transitory jobs in construction. These are long-term, stable, family-sustaining, community-building jobs. If you don’t build the upgraders and refineries, you don’t get these jobs – it’s as simple as that.
Our federation, working with the Communications, Energy and Paperworkers Union, has estimated that if the volume of diluted bitumen slated to go down the Keystone XL pipeline were instead upgraded in Alberta before being exported as synthetic crude, it would create as many as 18,000 permanent, direct and indirect jobs.
If the bitumen slated for the Northern Gateway pipeline was upgraded here and shipped as synthetic crude, it would create 26,000 jobs.
Those are numbers provided by economists working for the labour movement. But for our purposes today, I want to draw your attention to work done by other economists…in particular, work done by economists and energy experts working for the Alberta government itself.
We at the AFL do a lot of FOIP searches…and we recently did a search on reports conducted or commissioned by the government on the subject of upgrading.
The search netted about 8,000 pages of documents. But there were two that really stood out, both of which we have included in your kits.
The first is entitled “Alberta’s Value Added Oil Sands Opportunities and Bitumen Royalty in Kind.”
It includes this slide, which shows that when you export bitumen in raw or diluted form, you capture about 35 per cent of the value chain. But if you upgrade that same bitumen to synthetic crude and export that product, you capture 70 per cent of the value chain. And if you move even higher up the chain, to products like gasoline, diesel, jet fuel and petrochemicals, you can essentially capture 100 per cent of the value chain.
At the same time there is compelling evidence that moving up the value ladder will also generate more revenue for government to help pay for things that Albertans need like health care or education or which can be saved for future generations.
For example, just a few months ago, Ian McGregor from Northwest Upgrading told this committee that if his very small refinery had been in operation last year, it would have generated approximately $500 million more in revenue for the government than they got by allowing the bitumen to be exported raw. And that’s on a volume of 37,500 barrels per day…which is tiny compared to overall production from the oil sands.
So that’s what we stand to lose if we don’t find a way to arrest our province’s headlong tumble down the value ladder. Thousands of jobs. Millions, perhaps billions, in public revenue. And the difference between 35 per cent of the value chain and 70 per cent.
Of course, the skeptics will say – and have said – that the numbers just don’t add up.
And for a few years – just a few (between 2009 and 2011) – they didn’t. But they do now.
To illustrate my point, I’d like to draw your attention to the second very important document that we received as a result of our FOIP search.
This one is entitled “Oil Sands Fiscal Regime Competitiveness Review.” It comes to a number of very interesting conclusions about royalties (it shows we are not getting a fair share for the sale of our collectively owned resources) and carbon taxes (it shows that there is little to be feared from a carbon tax and actually something to be gained).
But for our purposes, I want to focus on the report’s findings on upgrading.
Basically, it says that there were two factors undermining the economics of Alberta-based upgrading between 2009-2011. The first was the spike in the cost of the oil sands related construction and the second was the narrowing of the differential between world oil prices and the price for bitumen.
Like many, many other studies I’ve seen this one concluded that the high cost of construction was a direct result of the pace of development. Too many projects, approved and under construction at the same time were undermining productivity and driving up costs.
On the differential side, the study points out that, contrary to the arguments presented and repeated recently by the premier, that a relatively wide differential is nothing new and nothing to be afraid of. In fact, the study shows that the differential has hovered in the 25-30 per cent range for most of the past two decades.
The study also shows that wider spread between conventional and oil prices and bitumen prices is not only good for Alberta-based upgrading, it’s our biggest competitive advantage.
Take a look at this slide. What it shows are the break even points for SAGD, mining and integrated projects at different differential and price levels. Look closely. What it shows is that projects with upgraders are very economic unless the differential gets narrower than 15 per cent. On the other hand, the viability of SAGD operations without upgraders plummets as the differential gets wider.
The picture is similar in the next slide, also from the same report. What this one shows is that upgraders are entirely viable in the current price and differential climate.
Here’s the report’s conclusion:
“Despite the fact that adding upgrading capacity makes less economic sense in today’s market (2011, when the differential was 15 percent), our sensitivity analysis suggests an integrated upgrader serves as a hedge against volatility of the light-heavy differential.”
Did you hear that? Upgraders profitable when the differential is above 25 per cent AND they are a responsible hedge against volatility in the light-heavy differential. They’re profitable over a greater range of market scenarios than extraction-only projects.
All this talk about differentials and sensitivity analysis sound confusing. But it’s actually really simple. Low bitumen prices are actually good for us because they allow our upgrader to buy their feedstock low and sell their refined products high. In fact SCO often trades at a premium to WTI priced conventional oil.
So that’s our question for the government as the steward of our collectively-owned resources: why shouldn’t we buy low and sell high? Why sell the world products that fetch a higher price and keep the jobs for ourselves?
That leads me to our recommendations:
First, we need to see the widening differential not as a threat, but as an opportunity.
Second, we need to stop chasing the mirage of price parity between bitumen and conventional oil. The differential is not the result of lack of market access. It the natural result of bitumen’s lower quality.
Do you remember the old Russian Ladas? The fact that they couldn’t get the same price for one of those hunks of junk as GM could get for a Cadillac was because they lacked market access. It was because their product was junk. We face a similar problem with bitumen. It may not be junk, but it’s not conventional oil. So instead of chasing the impossible dream of getting world price for our sub-par product, let’s upgrade and sell that higher-value product. The only way to get Cadillac prices is to sell a Cadillac product.
Third, we need to set a more reasonable pace for development in the oil sands. Unrestrained pace is driving up costs and higher costs are one of the factors leading companies to opt for the cheaper, extraction-only projects. But failing to set a more reasonable pace of development, as Peter Lougheed suggested, we’re pricing ourselves out of the market for the kind of value-added projects that Albertans want and which would be better for our economy over the long term.
Fourth, we need to make upgrading a condition of development, not an option. By leaving these important decisions entirely in the hands of largely foreign-based multi-national energy corporations, we’re ignoring Lougheed’s advice to act like owners. Even now that the numbers do add up for Alberta-based upgrading, these companies are not investing in value-added projects because have their own, existing refining plants in the US or in China. They see the money that can be made by buying our bitumen low and shelling the refined product high. But it’s our resource and it is we, the citizens of Alberta, who should be seizing the value opportunity, not some foreign based energy giant. It may make all sorts of sense from a private-profit point-of-view for Exxon and Sinopec to rip and ship our raw resources. But just because it makes sense for them, doesn’t mean it makes sense for Albertans, who own the resource.
Fifth, we need to expand the Bitumen Royalty In Kind program. It’s a good program, but we can’t build our provinces energy program with just one BRIK.
Finally, we need to be bold and build on Peter Lougheed’s legacy. Energy companies like Exxon and Sinopec cannot be counted on to make development decisions that are in the best interests of Albertans who own our resources. The approach that Lougheed took to build our petrochemical industry is actually the one we should take today with bitumen. He set a clear goal of building a value-added industry. He understood that the government, as the steward of the resources, had to be a participant in the market, not just a spectator. He introduced regulations about what could be exported and couldn’t be. He used public money to build critical infrastructure like straddle plans to support a value-added industry. And he created a public energy corporation to enter into joint-venture projects with reluctant private-sector investors. And it worked.
In the end, all we’re asking the government to do is to see and seize the opportunity that’s in front of us.
And we’re not asking you to do anything that previous Progressive Conservative governments haven’t already done. We are asking you to lead like Lougheed.
Standing Committee on Alberta’s Economic Future
review of the BRIK (Bitumen Royalty-in-Kind) Program
Committee Room A
4th Floor – Legislature Annex Building
Tuesday, February 26, 2013
A $2.4 billion drop in resource revenue has put Alberta on pace for a deficit of between $3.5- and $4 billion — one of the highest deficits in history, Finance Minister Doug Horner revealed Tuesday in the province's third quarter fiscal update.
The sea of red ink will be four times deeper than was forecast in the budget last February. The province initially predicted an $886 million deficit, but by the second quarter had increased its deficit forecast to $2.3 to $3 billion.
Now it's forecast to be $1 billion more, which will rival the $4 billion deficit the Don Getty government posted in 1986-87.
Horner blamed the ballooning deficit on the discounted price Alberta companies are getting for the heavy oil or bitumen from the oilsands, which has had a dramatic impact on royalties and taxes.
"We're seeing declining resource revenues in Alberta and that's, for the most part, a result of Alberta's market access problem," Horner told reporters at Calgary's McDougall Centre, "I know you have heard me talk a lot about the bitumen bubble. ... It is a bubble that is not going to pop any time soon and it is costing us a lot of money."
But he noted it is not just the differential between the price of Alberta heavy oil and West Texas Intermediate that is hurting the treasury, but also the higher exchange rate and lower land lease sales.
"It doesn't paint a pretty picture for the third quarter, and to be honest, it's not getting all that prettier," Horner said.
The new deficit projection doesn't include $1.1 billion the province is borrowing for the twinning of Highway 63 to Fort McMurray or the $4.1 billion already borrowed for various financial corporations and for lending to municipalities.
The sustainability fund which has covered four previous deficits has been reduced to $3.4 billion from a one-time high of $17 billion.
The flood of red ink prompted the government to simultaneously announce a three-year management salary freeze that it says will save taxpayers $54 million. Horner also announced plans to cut public sector managers by 10 per cent over the same three-year period.
While he said he didn't want to interfere in the ongoing collective bargaining, unions should take the management wage freeze as a sign of the times.
"We've been fairly consistent in saying that there is no new money," he said. "They should take that as a strong signal of what we have in mind."
The province froze MLA wages earlier this month, rejecting a one per cent cost of living increase to their $156,311 salaries.
Horner said his Conservative government has also found $600 million of in-year savings across all ministries.
Guy Smith, president of the Alberta Union of Provincial Employees, said he doesn't think the government should be blaming a $3.5 plus billion deficit on the discounted price of bitumen, which accounts for less than $1 billion of the shortfall.
"It seems rather strange that the minister of finance would tell Albertans that this is a long-term situation because it's probably not going to be," he said. "It seems to be very much a knee-jerk reaction to a situation that won't last."
Smith said Horner is obviously interfering in the collective bargaining process before it even begins and that rather than slash management jobs, he should be redeploying managers to the front lines to meet the province's rapidly growing population and its demand for more public services.
Alberta Federation of Labour President Gil McGowan said the finance minister appears to be more intent on finding scapegoats than solutions.
"It's clear they are desperate to blame anyone but themselves," he said. "It's time for the government to stop playing the blame game."
McGowan said the question Albertans should be asking is not where to cut, but why does the province have a deficit in a booming economy.
"The real cause of the problem has to do with years and years of cuts to taxes for high income earners and corporations, and years and years of royalty giveaways," he said. "It has nothing to do with how much we pay our public sector workers."
Wildrose Leader Danielle Smith said the fiscal update shows Premier Alison Redford's provincial budget is unravelling.
"We're seeing the budget was an absolute farce," she said.
She dismissed as "window-dressing" the government's plans to cut management by 10 per cent and to freeze their salaries.
Liberal critic Kent Hehr said it was folly to blame slumping oil and gas revenues for the financial problems, saying the government needs to budget more conservatively and change the tax structure.
"Everyone knows our revenue structure is broken," he said.
NDP critic David Eggen said Albertans are angry over the Tory government's bungling of the province's finances.
"They know our economy is growing," he said. "What's wrong with this government? Why did they miss the boat that's been sailing along in Alberta?"
The Calgary Herald, Tuesday, Feb. 19, 2013
Byline: Darcy Henton and Chris Varcoe
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."
The Canadian Press, Wednesday, Feb. 13, 2013
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. Weâ€™re 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 governmentâ€™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 thatâ€™s what is in the ground,â€� Mason said in a release.
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