Canadian provinces are getting much less in exchange for the oil and gas they produce now than in the past despite growing production, a new report has revealed. Authored by veteran earth scientist David Hughes, Canada’s Energy Outlook says that provincial revenues from oil and gas have dropped considerably over the past four decades as governments choose to support production growth but give up proportionate returns.
In Alberta, Canada’s top oil and gas producer, Hughes notes, oil royalty revenues fell from 80 percent of the total provincial revenues in 1979 to 3.3 percent in 2016. Over the same period, however, production of oil and gas doubled. The decline has been particularly marked since 2000, the report says, with the province’s 2016 oil and gas revenue down 90 percent from the 2005 level.
In the country’s second-largest gas producer, British Columbia, the situation is pretty similar, with revenues from the gas industry falling by 84 percent since 2005, while gas production doubled.
In short, Canada is producing more oil and gas than before—but the country is getting less for it despite higher prices during the height of the oil and gas cycles in the last few decades.
This is unsustainable, according to Hughes, not least because conventional oil exploration is long past its peak, and oil sands production is an energy-intensive production segment with an average energy return on investment ratio of 4:1. This compares with 10:1 for conventional oil deposits. Related: Eight Geopolitical Risks That Could Send Oil Prices Surging
The oil sands that are being developed now are relatively shallow, with an EROI ratio of 8:1, they will not last forever, and the deeper oil sands miners go, the more expensive their production will become, as well as more abundant in carbon emissions.
The conclusion seems to be that Canada’s fossil fuel industry has more problems than just a shortage of pipelines and a lower benchmark price than WTI. Provincial governments, the report suggests, are stimulating higher oil and gas production but are refraining from reaping proportional financial benefits, even as they diversify into renewables, which, according to the report, is not happening fast enough.
By Irina Slav for Oilprice.com
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