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Government Fossil Royalties Plummet Despite Increased Production

Alberta Legislature, Timorose/Wikimedia Commons

Government royalties from the Canadian oil and gas industry have plummeted since 2000 despite a considerable upswing in production, remaining in freefall even when the price of oil was sky high, says a recent report [1] by one of Canada’s top energy experts.

“Canada’s non-renewable energy resources are clearly being sold off for ever-decreasing benefit,” concludes veteran earth scientist David Hughes, in an energy outlook report that also deemed it virtually impossible [2] for Canada to meet its 2030 climate targets if the country also scales up oil and gas production.

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“Royalty revenue from hydrocarbon production has plummeted 63% since 2000, and corporate taxes earned by government on drilling and refining activity have declined more than 50%,” the report states, “despite national oil production growth of 75% and combined oil and gas production growth of 27%.”

In Alberta, Hughes adds, “while oil and gas production has doubled in [the province] since 1980 primarily due to expansions in the oil sands, revenue from royalties has plummeted from an 80% share of government revenue in 1979 to an estimated 3.3% in 2016.”

The Tyee says that decline is due in part “to a low royalty system that has favoured rising production over maximizing value for resource owners.”

According to the report, “royalties once accounted for between 13% and 17% of the sales revenue from oil and gas between 1990 and 2000,” notes veteran correspondent Andrew Nikiforuk. But since 2000, “royalties barely made a dent in things and have declined to 4.5% of sales revenue, a decrease of 74%,” despite the growth in production.

Nikiforuk also casts the report as “a reality check for pipeline proponents who portray the energy sector as a dominant job creator and economic force in the country.” The actual evidence “suggests a mature and shrinking industry now dependent on the extraction of lower quality and energy intensive resources such as bitumen and unconventional shale gas,” he writes. “Oil and gas workers, for example, account for only 2.23% of the national work force, and the majority of those jobs are temporary construction work in the oil sands.”

Hughes, whose work has been cited by Bloomberg, the Economist, and Canadian Business, sees the current fire sale on fossil fuels as very bad public policy. “Selling off the best of Canada’s remaining non-renewable resources at low prices, with minimal and declining returns to the public, compromises future energy security,” he told Nikiforuk.