A question for the Alberta oilpatch: If the market’s so great, what’s wrong with the market?

Why the Alberta oilpatch is smiling: “The world owes me a livin’ … the taxpayers of Alberta do, anyway!”

CALGARY

If the market’s so great, what’s wrong with the market?

Let’s put this question another way: If free markets regulate everything so wonderfully, why are the market fundamentalists who inhabit Alberta’s oilpatch gushing with praise for the Alberta government’s new “incentives” to oil and gas drilling companies? After all, their principal effect seems to be to distort the market!

Remember, these are the guys who are generously donating to the far-right Wildrose Alliance Party on account of their generally held view that Premier Ed Stelmach’s Conservative government isn’t nearly fundamentalist enough when it comes to the almighty market. Indeed, to hear some of them talk, you’d almost think Mr. Stelmach was turning into a socialist.

Or so they say to the rest of us. The reality, of course, is quite different. The reality, indeed, is nicely reflected in the headline on the recent Calgary Herald story about the Alberta government’s bizarrely generous drilling incentives: “Alberta oilpatch takes liking to royalty ‘gravy’.”

Yes, it’s about the gravy, stupid!

However, just as you always suspected, you won’t be getting to share the sauce. It turns out, in fact, that Premier Stelmach is a socialist of sorts. But his brand of socialism is only extended to his pals in the oilpatch, a few rich farmers and other traditional supporters of Conservative policies. It’s market fundamentalism for the rest of us.

The new drilling incentives the oil and gas drillers were cheering about were part of Mr. Stelmach’s embarrassingly swift retreat from his pitifully short-lived attempt to impose a modest royalty increase on the companies that extract oil and gas in Alberta.

When Mr. Stelmach eased royalties upward after he became premier, the oilpatch immediately threw a massive tantrum, threatened a capital strike and began funding the Wildrose Alliance, which is said now to have about $1.1 million in its election coffers.

In order to get the oilpatch to behave itself – that is, to return to funding the Tories as God Himself presumably intended – Mr. Stelmach and Energy Minister Ron Liepert folded like a couple of cheap tents.

Instead of a modest increase in royalties, we got things like this scheme, guaranteed to make any self-respecting oilman grin. As one of them explained to the Herald: “The effect, depending on the price of natural gas and depth of the well, gives us on the low side $2 million and the high side $3 million of royalty credits per well.”

Is that not clear enough? Well, don’t forget that the price of natural gas hit a seven-year-low last year and remains in the toilet.

So here’s Jim Riddell, president and chief operating officer of Paramount Resources, who told the Herald his company “is drilling 16 coal-bed methane wells this year, but it doesn’t plan to actually produce any gas.” (Emphasis added.)

Now, never mind the environmental questions about dubious coal-bed methane extraction techniques. “So why drill them?” the Herald asked Mr. Riddell. “‘These 750-metre wells are generally drilled in a day,’ he responded. ‘They cost about $150,000. So … the $200-a-metre Alberta credit we receive for drilling is equal to the cost of the well.’”

So, in case you were wondering, that’s how the almighty market works here in Alberta. The government pays drilling companies to extract a natural product for which there is insufficient market demand, damaging the environment along the way.

The oil companies then take some of the profits generated or freed up elsewhere by these expensive, market-distorting Conservative subsidies and give them to the Wildrose Alliance in the hopes they will soon have the opportunity to enact policies that are more, uh, market friendly…

What’s wrong with this picture of your tax dollars at work?

This post also appears on Rabble.ca.

2 Comments on "A question for the Alberta oilpatch: If the market’s so great, what’s wrong with the market?"

  1. Anonymous says:

    David: look up "game theory" on the web.

    If everyone follows the rules (and nobody subsidizes no one), then you're right, because we have a perfect market.

    Problem is, everyone is in the subsidy business. In other words, nobody follows the market rules.

    Each province tries to out-subsidize the other one. An imperfect market.

    So your blame should be sprayed over all provinces who subsidize oil and gas exploration. I think PEI is the only one that doesn't!

    Remember how movie-making activity hopped from one province to the next depending on the subsidies in place? "Hollywood North" kept relocating. I've lost track, I'm not sure where it is anymore.

    Same story.

  2. Anonymous says:

    Superbly articulated.

    A perfect example of how the omniscient market really works in Alberta!

    T Evans

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