OIl #2

As previously stated - I don't understand very much about oil - I don't understand how someone decides what it is worth or how someone decides to make more available now, but not last year. But what I don't understand the most is why Canada can't figure out how to get off of the boom or bust ride.

Canada's earliest economic roots developed from the sending of a natural resource to be process in another country. The fur traders of the 15th and 16th centuries sent beaver hides to England or France to be processed into hats. There appears to have been little inclination to at least start the felting process in Canada. Later our Eastern, Central and Western forests were denuded to provide lumber for British ships of war. Later still, continuing up to the present, we have dug ore or pumped oil out of the ground and then the sent the raw product elsewhere to be process or refined. Canadians, or at least the people who control our natural resources seldom seem to want to create industries based on our natural resources. This, in part means, that our economy is control by others and that we, as Canadians do not get the full economic benefit of the resources. Even more remarkably, we seem to charge less for our raw resources than do some other countries.

Take for example oil. While West Texas Intermediate Crude was selling for $50 a barrel, our Western Select heavy oil was only worth $33 a barrel (Calgary Herald). Perhaps if we processed it before shipping it, it would be worth more? We sell the stuff as an oil that is harder to refine. No wonder people pay less for it. We are in fact subsidizing companies in other countries to process our oil. I am not a big fan of any part of oil production, but if we are going to pump/dig the stuff out of the ground, surely we should get the maximum benefit from it.

To make matters worse, we don't charge enough to the companies who are pumping/digging it from our soil. According the The Tyee (an online magazine) Canada gets only about 20% of the royalties as does Norway (needs to be stated that Norway's oil is lighter - that is it is easier and cheaper to refine). To put it another way, Norway gets for very barrel of oil - five times as much as does Canada. It boggles the imagination as to what one could do with that much money over the period of a few years. Over a four year period, if Canada collected the same level of royalties as did Norway, there would be an additional $350 billion in our bank account. (Tyee). Because Canada is a federation and provinces are in control of the natural resources, the provinces get the lion's share of royalties. In 2012 Alberta collected approximately $6 billion in royalties from oil producers. If they charged what Norway does, it would have been just over $30 billion. That is a big difference!

Does it matter? Yes!!


The Huffington Post reported just over a year ago that Norway had banked almost a trillion dollars in its oil fund. The interest alone from those investments can pay for all of its social programs. In comparison Alberta's Heritage fund, in spite of the fact that Alberta has sold more oil than Norway, has after 30 years less than $18 billion saved. Canada as a nation has no such oil generated savings plan.

Norway chose to invest the money and not use it to maintain the day to day economy. Residents of Norway still pay income and sales tax.  Alberta and Canada spend their royalty checks wooing the voters. When Norway stops producing oil it will have a significant mount of money invested to  smooth out any pumps along the way. Alberta and all of the other oil producing provinces will once again just crash.

The bust part of the oil boom or bust cycle is preventable - or at least it was. Both the voters and the politicians lacked the will, the brains and/or the courage to do what was necessary. Now,once again some Canadians will unnecessarily suffer. And complain that it is someone else's fault - in fact it is all our fault.

Resources are not endless- we need to maximize the benefits before it is too late.