Your oilsands royalty primer

Bitumen royalties accounted for 10% of total Alberta government revenues in 2010-2011, and that is expected (according to the most recent Alberta Budget) to climb to approximately 20% of total government revenues, or $9.9 billion dollars by 2014-2015.  Both royalty revenue estimates and royalty rates make for contentious subjects in Alberta, and this post is intended to provide a primer into how the royalty regime works and how it impacts investment decisions.  My hope is that every Albertan will become more engaged in how this resource is managed, and the first step in that direction is understanding how it’s managed now, so here you go.

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Questions I’ll be asking #abvote candidates

What will determine my vote on April 23rd? I suppose it will surprise no one that I will vote based on the energy and environmental policies of the parties.  My key issue list includes 5 categories: 1) Savings, transparency, and accountability; 2) Market access; 3) Local environmental management; 4) Global environmental credibility; and 5) Getting the most value for our resources. Here are some of the questions I’ll ask the candidates who visit my house during the campaign, and some context for why I’m asking them. How does your party line up?

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Some clarification please, Mr. Mulcair.

Yesterday, NDP leadership candidate and environmental hawk Thomas Mulcair announced his intention to implement a, “new comprehensive plan to combat climate change.”  According to his press release, “Mulcair’s new plan would still be industry-focused and based on the principle that ‘polluters pay’, but it would expand beyond the 700 largest emitters in Canada to cover all major sources of climate change pollution.” Want to understand what this means?  Here are three questions you should ask – Who’s covered? What’s the cap?  Who gets the permits?

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Are you smarter than an energy 101 student at U of A?

I often get asked, “what do you teach?” I thought that a good way to answer this question might be to let you have a look at the midterm questions I asked my Energy 101 class yesterday here at the Alberta School of Business.  This is a new course, created last year, which aims to enhance student energy literacy, prepares students for co-op, summer, or permanent jobs, and complements our BCom degree programs in Natural Resources, Energy and Environment (if you follow me on Twitter, you’ll often see the #nree hashtag).

One of the key messages I send to my students is to know what you know and what you don’t. As such, the grading scheme I used had one point for each correct answer,with one point deducted for each incorrect answer (you need not attempt every question) and graded the section out of 20, despite there being 25 questions.  Answer 20 questions correctly and you’d get full marks.  Answer 25 correctly and you’d get 5 bonus points.  Answer 20 correctly and 5 incorrectly and you’d get 15 points out of the possible 20, and so on. After you’ve tried the questions, you can check your score on the solution key here: BUEC_488_midterm_2011_mc_solns.

Good luck! Let me know how you do.

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Alberta PC Leadership Q&A

With the co-operation of each of the PC Leadership candidates, I will be putting together an Energy and Environment Q&A on the Globe and Mail‘s Economy Lab site. This evening, I have sent the following three questions to each of the candidates, and asked that they respond, in 200 words or less for each question, … Read more

My latest in The Globe and Mail: Oil sands monitoring plan a good step forward

Environment Canada has released the second of two phases of a proposed environmental monitoring plan for the oil sands, and one need only look at the second name on the list of authors on the first page to understand its significance: Dr. David Schindler. Dr. Schindler is one of the most high-profile and well-respected personalities … Read more

The AUC and Maxim Power: No steps forward, 3 steps back.

Last week, on June 30th, the Alberta Utilities Commission approved the Milner Expansion Project, a 500Mw coal-fired generating facility, to be built 20km north of Grande Cache, west of Edmonton. This decision raises more issues that I can possibly cover in a single post, so I’ll narrow it down to my top 3.

First and foremost, I do not understand how it makes sense for the Alberta Utilities Commission, based on a request from Maxim Power,  to provide expeditious approval (see item 5 on page 1 here) based on the need for the plant (which the AUC is no longer supposed to consider in our de-regulated power market), and so that a utility project can be built in Alberta before federal GHG regulations come into place.

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Attn: Andrew Nikiforuk. If you’re going to make accusations, you should back them up.

In this article in The Tyee, Andrew Nikiforuk levels some very serious allegations with respect to the National Energy Board, suggesting that the Board has been captured (see * below for definition) by industry, that it cannot be objective because it is industry-financed, and that it does not appropriately balance the interests of energy companies with those of rural Canadians.

If you are going to level an accusation that the country’s most powerful regulatory body has been captured by industry, you would likely want to have the backup of experts in legal process, perhaps a regulatory economist (I might be biased on this one), and certainly you should be armed with a long list of citations to previous Board decisions which demonstrate your case. In this article, Nikiforuk’s primary source is Dave Core, director of federally regulated projects for the Canadian Association of Energy and Pipeline Landowner Associations (CAEPLA), described on the CAEPLA website as, “…one of Canada’s foremost and leading landowner advocates.” In other words, he works on behalf of those people who are most negatively affected by energy infrastructure – those with pipelines literally in their backyards. With that kind of backup, Mr. Nikiforuk is bringing a knife to a gunfight.

Nikiforuk’s argument that the NEB has been captured is supported with a quote from a 2000 report (which is not online) on the NEB’s effectiveness by Purvin & Gertz saying that, “there is a disturbing perception that the National Energy Board has in some sense been ‘captured’ by the western based producer and pipeline industries.”  The perception of capture does not, in and of itself, imply capture, and I am sure if that report had any more damning evidence, it would have been cited.  Further, as you will see below, Nikiforuk is not afraid to take a quote out of context.

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Gas prices, fuel economy, electricity prices, etc.

Last night, I posted a simple calculation to Twitter.  Based on gasoline energy content of 32.2 MJ/l LHV, and a conversion of 3.6 MJ/kWh, I calculated 8.94 kWh/l of gasoline, and thus stated that $1.30/l gasoline was approximately equivalent to 14.4c/kWh electricity.  This had, in a sense, the desired result.  Many of my followers followed … Read more