Albertans own the resource. Given how the cost of oil sands production has increased over the past decade, most economists would agree that we’re likely dissipating rents through a too-rapid pace of development. For projects such as Imperial Oil’s Kearl, the impact of multibillion-dollar cost-overruns will be softened by lower future tax and royalty payments. Others, such as Suncor, paid only 7.4 per cent of gross revenues from oil sands operations in royalties to the province in 2014. Albertans should ask whether we are taking on more risk than we should and whether we’re giving away our bitumen to drive economic activity.

We could slow the pace of development and increase the effective charges on oil sands by requiring companies to build refineries or upgraders, or we could charge them more for access to the resource. It’s the preference for the former which I’ve never understood: Why tax via demands to build refineries companies would otherwise not build? Why not simply take a larger share in cash, and deploy the cash toward the construction of things we’d likely value more – such as hospitals and schools, or toward rebuilding the Alberta Heritage Fund?

Alberta has, in effect, already made the decision to do the opposite – to use government revenues to build a refinery. The government estimates that it will pay $26-billion over 30 years to have 37,500 barrels a day of provincially owned bitumen processed at the new Northwest Refinery – for an average of $63 a barrel. The problem? The value of refined products is unlikely to be $63 a barrel more than the value of bitumen; over the past five years, the premium on the Gulf Coast between heavy crudes and the diesel and naphtha yield expected from the Northwest Refinery has been about $22 a barrel. Perhaps local price implications will be slightly better for the refinery, but not $40 a barrel better.

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