Danielle Smith: Pipeline protestors to cost Alberta treasury at least $2.5B in 2018

Protesters demonstrate against the Northern Gateway Pipeline in Vancouver, Saturday, May 10, 2014. CP Images

Anti-pipeline protesters are costing Albertans billions of dollars in lost revenue. You read that right — billions.

David Yager, an energy analyst with Yager Management Ltd., has been warning for years about how much of a hit we take when our government and our energy companies cannot get the world price for our oil. With new numbers out by Deloitte about what we can expect for oil prices in 2018, I asked Yager if he’d do a back-of-the-envelope calculation of just how much Alberta is losing because we cannot get the world price for our bitumen.

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Since the U.S. is our only customer, the price is set by supply and demand from refiners in the U.S. market. Without other customers, we’ve got no bargaining power. We have to take what they give us.

The result is the spread between what we are paid and what we should be paid is huge. Deloitte projects that West Texas Intermediate will average US$55 a barrel in 2018, but Western Canada Select (WCS) will only average US$36 a barrel.

It’s true there is additional cost in upgrading heavy crude, so some differential would be expected; a few dollars maybe, but not US$19.

What does it mean for the industry? Well, here’s the math. On 2.8 million barrels per day production, that WCS price would apply to about 1.82 million barrels per day or 664 million barrels per year.

At a loss of US$15 per barrel — and adjusting for value of the Canadian dollar — that “anti-pipeline protest premium” will cost the industry about C$12.5 billion in 2018.

If you assume the provincial royalty take is 20 per cent, that’s a $2.5 billion deadweight loss to the Alberta treasury because the NDP pals in the pipeline protest movement — activists like Naomi Klein and Tzeporah Berman — believe Alberta’s energy industry shouldn’t exist.

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As one of my listeners pointed out, that is actually a low estimate.

If the industry were able to earn $12.5 billion more, they would be plowing it back into the industry to create more production and hire more people, resulting in additional dollars in royalties, and corporate and personal income tax revenues.

Let’s not forget the federal government collects corporate and personal income tax revenues as well, a portion of which goes to pay equalization payments in the so-called have-not provinces, so the entire country is harmed when the protesters win.

Yager pointed out the absurdity of a handful of environmental extremists being permitted to control the fate of our economy. And yet, here were are still not knowing whether the three latest pipelines will even get built. Tragic.

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