Response to Styles |
In his April 17 letter, John Styles wrote that he was Òdeeply troubledÓ by my April 6 letter, which proposed that the government of Saskatchewan raise oil and gas royalties. Advocates of low royalties have systematically chosen not to address the case for higher royalties, preferring to continue reducing royalties without publicly discussing the issue. Although I disagree with Styles, I commend him for coming forward to present his side of the debate.
He assumes that the goal of SaskatchewanÕs royalty policy should be to increase the volume of oil and gas currently produced in the province. Of course, he is correct that, by making more potential wells economical, low royalties facilitate greater output.
However, resource extraction is not an end unto itself. Royalty policy should seek to maximize not the rate at which oil companies deplete SaskatchewanÕs fossil fuel reserves but the benefits that Saskatchewan people derive from this process.
Low royalties help create some jobs in the oil patch. But they also greatly reduce provincial revenues, sharply constrict SaskatchewanÕs equalization entitlement, irresponsibly raise the provinceÕs greenhouse gas emissions, and rapidly exhaust the finite stock of oil and gas available for future production.
Higher royalties would achieve the opposite results, which would more than compensate for lost oil patch jobs. By transferring funds from a capital intensive industry largely headquartered outside Saskatchewan to other economic sectors, higher royalties would actually increase overall employment in the province.
Styles argues that geologic factors make conventional petroleum production relatively more profitable in Alberta, leaving Saskatchewan no room to raise royalties. However, business will ultimately exploit all profitable drilling opportunities, regardless of which are relatively more profitable. Royalties could be increased so as to ensure that the vast majority of SaskatchewanÕs wells remain profitable.
As Styles notes, AlbertaÕs conventional extraction is declining. This limits the extent to which conventional production could be shifted there. Of course, the equipment used to extract conventional oil cannot be used to mine AlbertaÕs tar sands. Inter provincial competition constrains SaskatchewanÕs royalties much less than Styles suggests.
I agree with him that moderate royalties that collect substantial revenues, while allowing industry re investment, are ideal. But after two decades of steep cuts, royalties are far below this optimum. As exceedingly high oil prices create huge windfall profits in SaskatchewanÕs petroleum sector, the provincial government should ensure Saskatchewan people a fair return on the depletion of their non renewable resources by raising royalty rates from their current depths to more moderate levels.
ERIN M. K. WEIR
Regina
(The Leader-Post confirmed this letter for publication, but did not publish it.)