So Where Does That Oil and Gas Rent Money Go?

During our interview, John Warnock defined the concept of economic rent.

Key to this concept is that fact that, "Natural resources are a free gift from nature." As such, resources like oil and gas are considered public property, with governments entitled to exact payments, royalties and taxes on behalf of the public to compensate for the extraction and depletion of the resource by private corporations.

In the context of the oil and gas industry, economic rent is the difference between the cost of exploration, field development and extraction, and the final market price. According to Mr. Warnock, "These costs include a normal rate of return on investment." In other words, oil and gas companies have already made their profits even before the calculation of rents. The remaining economic rent is extremely valuable. It's up for grabs, and who gets it and in what proportions becomes a political contest between between public authorities and private interests.

In many parts of the world, governments insist on claiming a very high portion of this rent. In Saudi Arabia, the organization of the oil industry allows the Saud government to collect nearly 100% of rent. The Russian government in 2005 claimed 90% of oil rent.

What is interesting in all this, is that if international oil companies don't like giving up this lucrative rent to national governments, they are free to find a Saudi or Russian oil field elsewhere. Oil companies, making a normal rate of return, and with really no where else to go, stay.

Every once in a while, private oil companies do get aggressive. For example, in Venuzuela, where government demands a 50-50 sharing of oil between their national oil company and private oil corporations, there was a coup in 2002 against nationalist president Hugo Chavez. The subsequent installation of a "business friendly" president resulted in wide spread rioting, leading to the re-installation of Chavez as president.

In Saskatchewan, it appears that recent provincial governments surrendered this rent without much of a fight. According to Mr. Warnock's report, "...the average actual [oil] royalty rate would thus be less than six percent." For natural gas, "...corporations do not pay any royalties until the incentive [25 million cubic metres] has been extracted." As a result, "...the royalties received by the people of Saskatchewan for the extraction of natural gas are lower than those collected in Alberta and British Columbia."

Questions: Should Saskatchewan bring itself in line with other jurisdictions and insist on claiming a higher portion of this economic rent? Should we be using this rent to help cushion our transition into an energy depleted world?

Again, John Warnock's report can be downloaded at http://www.ualberta.ca/~parkland/research/studies/OilSaskWeb.pdf

Running Out of Natural Gas? Brrr....

During the interview Mr. Warnock suggested that Canada could run out of natural gas in as little as 10 years. Mr. Warnock's Report stated that, "Saskatchewan's conventional oil and gas reserves are being rapidly depleted, and shipped off to the United States. We have only an eight year supply of natural gas at current rates of extraction."(emphasis added)

This does not bode well for people living in Saskatchewan's harsh winter climate. Anyone who heats their home or business with natural gas is facing a potentially life-threatening situation.

Sadly, the provincial government's actions are apparently exacerbating the problem, by increasing depletion rates, and exhausting this resource even sooner.

The Report noted that, "In February 2006 Premier Lorne Calvert and Industry and Resources Minister Eric Cline went to Washington to meet with Vice President Dick Cheney, to make it clear to him that the government of Saskatchewan is fully behind exporting even more energy, if that is possible." (emphasis added)

Furthermore, "There has been no public debate on this government strategy, most likely because it is strongly supported by the two opposition parties, the Saskatchewan Party and the Liberal Party."

The Report suggests that there may be some very cold winter days ahead for people who use natural gas to stay warm during the winter.

So what do you think? Would the provincial government be going in the right direction with this type of strategy? Should there be more public debate on this issue?

Interview with Jack Warnock on local and international energy policy

This Friday's program we will interview Jack Warnock, whose Report "Selling the Family Silver: Oil and Gas Royalties, Corporate Profits and the Disregard Public" was recently released by the University of Alberta's Parkland Institute.

The Report looks at the history of and current trends in energy policy internationally, and assesses Canadian policy in that context. The Report reveals that, while elsewhere in the world governments have been increasing public ownership and control of oil and gas sectors and increasing royalties and rent capture, Canada has gone the opposite direction.

Copies of the Report are available on the web at http://www.ualberta.ca/PARKLAND/research/studies/OilSaskWeb.pdf.

Join us on Friday November 24 or on Monday November 27 replay to hear our interview with Mr. Warnock.

Welcome to Opening Spaces - A Regina (Sask) community radio program - 91.3 fm

Opening Spaces is heard on CJTR 91.3 fm, Regina's Community Radio Station . It is broadcast live Friday mornings at 10, with a re-broadcast Monday mornings at 9.

The program examines social and environmental issues, and interviews guests who look at these issues from a local point of view.

So please join us Friday or Monday mornings by listening in at 91.3 fm, or over the internet at www.cjtr.ca.