Thread by @abraaten

1/Thread: The Economic Forecast no one’s talking about in #Alberta #ABVote #ableg

2/ Every year, the Canadian Energy Research Institute publishes its annual Oil Sands Supply Cost study, often with meagre fanfare and media coverage. You can find their studies here:

ceri.ca/studies

3/ These #oilsands supply cost reports always included a forecast of bitumen royalty revenues, but in 2017 this specific chart was dropped from the annual report, probably because of market conditions. #ableg #abvote

4/ Using the 2014 forecast, we can get a sense of a high end, or upper range forecast, because market conditions were favourable, and so were the assumptions used to generate the numbers. From Study #141, p56: ceri.ca/studies/canadi…

5/ The left axis is plotting annual bitumen royalties and corresponds to the s-shaped curves.

The right axis plots projected cumulative royalties at a forecasted date, and corresponds with the convex curves.

Each curve = a high, medium and low scenario.

6/ Pick the year 2036.

Annual bitumen revenues: $37 bn

Cumulative revenues: $400bn.

Yes, Billion. With a B.

These are Dr. Evil-tier numbers.

7/ The CERI forecasts are counterintuitive, if not outrageous because we’ve been led to believe that bitumen royalties as a % of price is negligible.

While that’s true, it’s not the full story.

8/ Some of us may have even bought into the false equivalencies of Norway-Alberta, and have concluded that we frittered away our bitumen inheritance while the wise Norwegians built themselves up a massive sovereign wealth fund.

9/ The short version of the “rest of the story” is that #oilsands royalties remain low because oilsands projects are still paying off their capital costs. Once a project reaches payout, royalty rates jump. For the longer version of the story:

https://twitter.com/abraaten/status/946974212031262720?s=21

10/ #oilsands royalties *did* collapse with market conditions, which implies CERI’s forecast is fragile.

alberta.ca/royalty-oil-sa…

11/ Nevertheless, you can get a feel for the difference between pre and post payout revenues from the #ABgov

alberta.ca/royalty-oil-sa…

12/ if CERI’s 2014 forecast is a “high” assumptions forecast, surely the 2016 version can be considered a “low” assumptions forecast, and the real range of bitumen revenues lies between.

13/ You can also get some data on pre/post payout royalty rates here: alberta.ca/royalty-oil-sa…

14/ What does this mean for #Alberta and #abvote ?

First: Alberta absolutely needs access to markets if we are going to keep differentials down and gain full value for our resources. Without this infrastructure, CERI’s forecasts deteriorate, and we lose BILLIONS.

15/ Second: The next 2 governments elected in Alberta will see more robust bitumen royalties coming into government coffers.

Assuming debt and spending are kept in check, the budget, in this case, will eventually balance itself.

16/ Third: Alberta is not Norway... Yet.

In fact, our best days lie ahead of us.

There is a real opportunity to capture up to $1 trillion in bitumen royalties over the next generation.

17/ Fourth: We have some transparency around bitumen royalty forecasts, but not enough eyes on the subject matter (hence this thread).

Albertans would benefit from more discussion around how royalties evolve as projects reach their payout date.

18/ thread not ended. I’m going to take a break for a while and resume at a later date...