Jim Prentice has reason to panic; here's why

Let's face it, the Keystone and Northern Gateway pipeline routes are not likely to go ahead soon — if ever. Energy East seems more promising, but there are still a lot of hoops to jump through before any of our province's bitumen begins to flow through it — if ever.

In short, Alberta premier Jim Prentice has good reason to panic.

In the coming months and years, we're going to see the full impact of decades of government mismanagement of our energy resources, a virtual giveaway of one of the world's biggest buried pots of money.

People are starting to ask: how can a jurisdiction producing more than 2.5 million barrels of bitumen a day not balance its rather modest provincial budget?

We already have the lowest spending per capita on government services in the nation. We have the second-lowest number of government employees per capita in the nation. We're middle of the pack for total per capita spending.

Alberta is not a profligate spender of its revenue. The Alberta budget is in deficit because we just don't claim the revenue that would rightfully be due in any other jurisdiction in the world.

Norway produces 40 per cent less oil than we do. But they post annual budget surpluses of about $44 billion a year, while spending way more on government services per capita than we do. Norway has a sovereign wealth trust fund worth over $650 billion (to be over a trillion dollars in five years), which currently spins about $25 billion a year in interest.

The same global energy companies at work in Alberta are at work in Norway. In Norway, they're perfectly OK paying 70 per cent of their profits in royalties to the government.

In Alberta, those same companies begrudge us 10 per cent of the total market value of oil, gas and oilsands production. And if anyone talks about raising our royalties, it's like somebody suggested an armed insurrection.

Oil rich Alberta? Not for all Albertans.

If you want a picture of how unequally energy wealth accrues in Alberta, consider that we have the highest median income in Canada. Something to be proud of, right? But of the province's total wealth, about 6 per cent is shared by Albertans earning less than the 50^th percentile of income. That's half of all wage-earners.

Oil rich Alberta? Not so much for taxpayers, either. Alberta gets more revenue from selling lottery tickets and licensing slot machines than we do from developing our vast energy resources.

Without those pipelines, we're still exporting a vast amount of oil and bitumen every day. Why isn't Alberta just sitting back and posting surpluses every year on the royalties from that?

Because Alberta doesn't prosper from oil production, in the same way it prospers from investment in ever-increasing capacity to export more. Were only rich when the oil patch grows.

And therein lies the reason for Prentice to panic. Without those pipelines, our capacity to grow will soon reach its limit. No matter how big those oilsands plants get, if they aren't growing, Albertans don't get much from them.

Royalties from our current production should be more than sufficient to buffer boom-and-bust cycles of global prices, considering how little (comparatively) our government spends.

In 2012 (when prices were quite a bit higher) total oilsands revenue was $49 billion. The province got $3.7 billion in royalties.

But $27.2 billion was spent building capacity to produce more bitumen for export. That's the wages that drive up our median incomes, home values and our feeling of wealth.

That's the figure Prentice fears may drop. But it has to drop someday. Albertans know this in their bones; no boom ever lasts. Eventually, expansion will stop completely, because there's either no place left to expand, and/or we can't export the product anyway.

Even so, we'll still be producing lots of oil, gas and bitumen. Every day. Taxpayers — the supposed owners of the resource — just won't see very much revenue from it.

When Peter Lougheed was premier, the government's share of the total value of oil, gas, and oilsands was 40 per cent. Pretty low, by world standards. That's how the Alberta Heritage Fund got started.

By today, successive Tory governments have cut our share to 10 per cent. That's why the Heritage Fund is a global joke.

Here's what the Parkland Institute reported in 2012: “The Alberta government will forego some $55 billion in potential revenue over the next three years as a result of overly-generous royalty cuts, and the government's failure to meet even the modest goals set by the previous administration.”

Without new pipelines and continuous growth in the oil patch, Albertans will feel in their own pockets how much has been given away by our government.

It's quite possible those pipelines aren't going to happen. That's why Jim Prentice has reason to panic.