A recent Bloomberg report describes a US$433 billion “missed opportunity” in oil-rich Alberta, Canada’s fourth most populous province. It’s based on the assumption that if the Alberta Heritage Savings Trust Fund had been kept on plan since its creation in 1976, it could now be worth C$575 billion ($433 billion), according to estimates by Trevor Tombe, an economics professor at the University of Calgary quoted in the report.
Instead, the fund has just lost C$1.9 billion in the coronavirus crisis assets crunch, and is now down to just C$16.3 billion.
The Alberta government, which stopped systematically adding resource revenues to the fund in 1987, now faces a C$20 billion deficit even though – or perhaps because – the traditionally conservative province has the lowest corporate tax rate in Canada, and no provincial sales tax.
Mr. Tombe draws a comparison with Norway’s Government Pension Fund Global, now worth $1.12 trillion, and what could have been done if Alberta’s oil revenues had been handled similarly. There’s a salutary lesson about the value of prudential management by major institutions, and their supporting governments. But this is also a case of the travails of the petrochemicals sector, and where propositions based on it may be headed.
Alberta is the hub of Canada’s oil industry, thanks to the Athabasca oil sands and other petrochemicals assets. But oil and gas firms are struggling and the unemployment rate in the province is now 15.5%.
But Alberta is by no means the unluckiest, or worst managed, oil economy. For a truly missed opportunity in petroleum revenue management, look at the UK, where North Sea oil revenues were absorbed into the national budget and the endless sinkhole of post-war British economic mismanagement.
Meanwhile, in Norway, providential sequestration of oil revenues into the Government Pension Fund Global created the world’s largest and possibly most influential sovereign wealth fund, for a country with less than one-tenth the population of the UK.
In any event, that opportunity has most likely passed for everyone. The collapse in demand for oil during the coronavirus crisis, the struggles of shale oil, the push by governments and private sector groups alike towards a post-petrochemicals economy, all indicate that that particular cash cow has drawn its last breath during the crisis, with no new breed in sight. Ignorant, selfish, short-sighted and small-minded politicians are going to have to look elsewhere for fresh beasts to milk.