Thursday, July 2, 2009

Natural gas and AB fiscal situation

The economic exploitation of shale gas is likely to result in a long-term downward revision of natural gas prices. In turn, this will likely result in a significant long-term reduction in natural gas royalties for Alberta. In 2008, natural gas royalties contributed about $6bn to the Alberta treasury, in addition to indirect contributions through corporate and personal income taxes. This year, the figure will be maybe $3.5bn. And there seems little prospect of a return to higher revenues -- indeed, revenues will probably trend down with a drop in drilling.

I am not an expert in this area, but would like to hear your views on what this means for Alberta and perhaps for U of C. It looks to me like the province, the city, and the university should be considering a permanent reduction in expenditures to match the reduction in revenues. This is not related to the recession, so we can't just aim for stimulus spending: it really relates to the improvement in technologies enabling economic access to shale gas and is a permanent feature of our economy.

No comments: