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OPINION | Why everyone needs to stop 'Norwailing' over Alberta's oil piggy bank

It's time to stop lamenting the sorry state of the Alberta Heritage Savings Trust Fund (which currently sits at $16.3 billion) and comparing it to Norway’s own oil-driven sovereign wealth fund, whose balance is measured in the trillions of dollars.

There are major differences between Alberta and Norway that render comparisons of the two largely moot

The Johan Sverdrup field in the Norwegian North Sea commenced production in 2019. According to Max Fawcett, the substantial differences between Alberta and Norway make any comparison of the two largely moot. (Equinor ASA)

This column is an opinion from Max Fawcett, a freelance writer and the former editor of Alberta Oil magazine.

In 1976, in the face of soaring global oil prices and the flood of cash that was coming into the provincial treasury as a result, then-premier Peter Lougheed signed off on the creation of the Alberta Heritage Savings Trust Fund.

Its goals were threefold: "To save for the future, to strengthen or diversify the economy, and to improve the quality of life of Albertans." 

It didn't quite turn out that way, of course.

Indeed, the Government of Alberta stopped making regular contributions to the fund within a decade, when oil prices collapsed and its budget deficit exploded.

But while it didn't end up creating the kind of fiscal safeguard for future generations that Lougheed imagined at the time, it has produced a rich bounty of something else: Norwailing.

That's the practice of lamenting the sorry state of the Alberta Heritage Savings Trust Fund (which currently sits at $16.3 billion) and comparing it to Norway's own oil-driven sovereign wealth fund, whose balance is measured in the trillions of dollars.

The latest example

The latest example comes from Bloomberg, where Kevin Orland and Kait Bolongaro write about Alberta's squandered opportunity and compare it with Norway, which is withdrawing $37 billion from its fund this year to help shore up its finances.

"Despite striking oil about half a century earlier than Norway," they write, "Alberta has no similar piggy bank to crack."

There's no question that Alberta has done a poor job of living up to the vision that Lougheed set for the heritage fund.

As University of Calgary economist Trevor Tombe notes in the Bloomberg piece, if the heritage fund had followed the rules that Norway used for its fund — namely, contributing all of its resource revenues and only withdrawing four per cent a year — Albertans would be sitting on a $575-billion nest egg.

But as University of Alberta professor and economist Andrew Leach noted on Twitter, "public policy is easily done in hindsight." And it's far easier to levy an imaginary tax on voters in the past than actually do it in the present. 

That would be a prerequisite of any plan to save all of Alberta's resource revenues, since the province has depended on them for decades to balance its budget.

Norway had very high taxes before it discovered its oil reserves, including a 25 per cent sales tax on most goods and services, and it chose to keep them that way. In Alberta, of course, a five per cent sales tax would probably cause a significant portion of the population to rise up in the streets and revolt. 

Comparisons are largely moot

But there are other major differences between Alberta and Norway that renders any comparison of the two largely moot.

First, there's the very nature of the oil in question.

A heavy hauler mining truck dumps a load of bitumen ore at the Fort Hills, Alta., oilsands facility. One of the main differences between the oil industries of Alberta and Norway is the very nature of the oil in question. (Kyle Bakx/CBC)

As Prof. Leach noted on Twitter, "the problem facing Alberta has always been to unlock the vast physical resource that exists in the oilsands at competitive costs. If that could be accomplished, it was reasonable to expect both production and rents to increase over time."

In other words, the very nature of Alberta's oil and the industry that extracts it should have served as a kind of shared endowment — one whose payouts would grow into the future.

"You don't save to prepare for a future with higher resource revenues," Leach wrote. 

Norway, on the other hand, was dealing with a much more limited physical resource whose depletion was always a question of when, not if. By saving the rents that it generated, they were preparing for a future in which those rents would no longer exist.

Recent new discoveries, such as the Johan Sverdrup field, have extended the lifespan of those rents, but the principle at work remains the same — and the outcome is clearly one that most Norwegians are happy with. 

Then there are the geopolitical differences.

Norway is a country whose relatively small population is concentrated in the south and along its coast. Alberta, on the other hand, is a province whose population is far less efficiently distributed — and whose cost of delivering services is higher as a result.

Most importantly, there's the fact that Norway's leaders don't have to worry about their savings drawing the covetous eye of a higher level of government, as could very well be the case in Alberta if it built up a big enough bankroll.

Right now, that's about as realistic a concern for Alberta's leaders as worrying about what to do if they win the lottery. But it wasn't that long ago that Alberta did, in fact, appear to have won the lottery.

Understandable, if not excusable

The world seemed to be facing a structural shortage of crude oil supplies, and Alberta just happened to be sitting next to one of the biggest deposits on Earth.

In that context, it was understandable — if not entirely excusable — that it failed to save the revenues those deposits were generating for the government. 

What's less excusable is that it spent most of the income that the Lougheed-era savings were generating.

Between 1997 and 2011, the Alberta government transferred nearly 95 per cent of the $31.3 billion in net income generated by the fund's capital into its own coffers. And while it certainly used some of that to pay down the debt incurred by the province in the 1980s and 1990s, it could just as easily have done that by raising taxes — or implementing a modest sales tax. 

A 2011 report from the Premier's Council for Economic Strategy called this out, noting that "the practice of spending this converted capital as if it were ordinary income deprives Albertans of the opportunity to intentionally shape our future."

Alberta Premier Peter Lougheed speaks to a news conference in Toronto in 1976, the year he created the Alberta Heritage Savings Trust Fund. (The Canadian Press)

Indeed, as Jack Mintz — a celebrated member of the current premier's Economic Recovery Council — wrote back in 2013, "Alberta is borrowing vast sums of money from future generations by selling oil and natural gas real assets for current spending."

Ironically, the practice of using oil and gas revenues to fund Alberta's budget may have fuelled some of the excessive spending that has Jason Kenney's government so animated right now. Who better, then, than Kenney to finally put an end to it?

Restoring Lougheed's promise

By implementing a modest sales tax and diverting the revenues from oil and gas to the heritage fund, he could restore the promise that Lougheed made to Albertans more than 40 years ago. 

And make no mistake: while many people believe that those revenues will only continue to decline, we could actually be on the cusp of one last and potentially explosive boom.

With the shale industry's business model in flaming ruins and CEOs of major companies like Parsley Energy saying that U.S. oil production will never — yes, never — return to the level it was at back in February, the picture is suddenly looking quite favourable.

Mix in years of under-investment in offshore projects and other reliable sources of supply, decisions by European companies like BP to aggressively shift their focus toward renewable energy, a stated desire by the U.S. federal reserve to support inflation (which is good for commodities like oil), and progress on pipeline projects like TMX and Line 3, and the stars look like they might finally be aligning for Canada's beleaguered energy sector.

Amrita Sen, the co-founder and director of research for Energy Aspects, an international consultancy firm, is predicting that Brent crude could average $83 in 2023. 

Better times may be coming for natural gas

Even natural gas, which has taken a beating over the last few years, is starting to look interesting.

America's booming shale oil industry generated massive volumes of so-called "associated" natural gas, which swamped North American markets and drove down the price. But now, as drilling has fallen off a cliff (the rig count in the U.S. has dropped to the lowest level since 1975), so, too, will that "associated" gas.

With LNG Canada moving steadily toward completion, it's not hard to see that better times may lie ahead for Alberta's natural gas industry — one that contributed the lion's share of the province's booming royalties in the 2000s. 

In other words, it's not too late for Alberta to fix the heritage fund.

And while Albertans have much to learn from their own experience in the past, and the failure of its leaders to put the interests of future generations ahead of the needs of current ones, that has very little to do with what happened in Norway.

It's time for everyone — pundits and politicians alike — to stop making that comparison.


This column is an opinion. For more information about our commentary section, please read our FAQ.

About the Author

Max Fawcett is the former editor of Alberta Oil and Vancouver magazines. He worked in the Alberta government’s climate change office between 2017 and 2019.

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