Alberta's Oil Industry Exodus: Billions in Subsidies and a Shifting Landscape

Alberta, Canada, has long been a hub for oil and gas production, but recent years have seen a shift in the industry landscape. While the province has provided billions in subsidies to oil companies, a number of these companies have ceased operations in Alberta, raising questions about the effectiveness of these subsidies and the future of the province's energy sector. This article delves into the details of government subsidies provided to oil companies in Alberta, the reasons behind the exodus of some companies, and the potential economic and environmental impacts of this trend, highlighting how these subsidies have essentially become a "going away present" for departing companies.

Government Subsidies to Oil Companies in Alberta

Over the past eight years, the Alberta government has implemented various programs and incentives to support the oil and gas industry. These include tax breaks, royalty holidays, research grants, and direct subsidies 1. While the exact amount given to companies that ultimately left the province is not specified in the available information, it's important to understand the scale of these subsidies and their potential implications. Notably, five major oil companies, some of which have since reduced their presence or exited Alberta, received a combined $4.3 billion in provincial corporate tax giveaways 1. This raises concerns about whether these subsidies are effectively supporting the long-term viability of the industry or simply providing a financial cushion for companies on their way out.

One notable example is the Site Rehabilitation Program, which was launched in 2020 with $1.7 billion in federal funding, primarily allocated to Alberta 2. This program aimed to support the cleanup of inactive oil and gas wells. However, a significant portion of the funding went to a few major companies, including Canadian Natural Resources Limited (CNRL) and Cenovus, which received $172 million and $66 million, respectively 3. Furthermore, Alberta ultimately returned $137 million of this funding to the federal government, raising questions about the efficiency of the program's implementation 2. Despite challenges in dispersing the funds, including pandemic-related disruptions and industry fluctuations, provincial governments made significant progress in plugging orphaned and inactive wells 2.

In addition to the Site Rehabilitation Program, Alberta has provided substantial support to the oil and gas industry through other initiatives. In the last three fiscal years alone, the province allocated $4.8 billion in subsidies to oil, gas, and coal industries 4. These subsidies aim to encourage fossil fuel companies to expand their operations, but they have also been criticized for contradicting the goals of Alberta's Climate Leadership Plan, which seeks to phase out coal electricity, increase renewable energy, and reduce emissions 4. This apparent contradiction raises concerns about the province's commitment to a sustainable energy future and the potential long-term economic risks associated with continued reliance on fossil fuels.

It's crucial to place Alberta's subsidies within the broader context of government support for the oil and gas sector in Canada. Between 2010 and 2016, federal, provincial, and local subsidies to the sector amounted to $1.9 billion in total, averaging $271 million annually 5. This level of support, while significant, is lower than subsidies provided to other industries, such as rail, motion pictures, and crop production 5.

More recently, the Canadian government dedicated $18 billion in 2020 to assist the oil and gas sector during the COVID-19 pandemic 6. This assistance included funding for pipelines, inactive well cleanup, and other measures intended to support the industry during a period of economic uncertainty.

To further illustrate the various subsidy programs, the following table provides a summary of their key features:

Program Name

Funding Amount

Objectives

Citations

Site Rehabilitation Program

$1.7 billion (federal funding, with $137 million returned)

Cleanup of inactive oil and gas wells

2

Alberta Petrochemicals Incentive Program

$408 million (for Inter Pipeline), $161 million (for Air Products), $32 million (for Dow Canada)

Support for new petrochemical facilities

7

Alberta Carbon Capture Incentive Program

12% grant for eligible CCUS capital costs

Development of new carbon capture, utilization, and storage infrastructure

8

Emissions Reduction Alberta's (ERA) Industrial Transformation Challenge

Over $60 million

Support for industrial sector emissions reduction projects

9

Oil Companies Leaving Alberta

While the precise number of oil companies that have left Alberta in the last eight years is not explicitly stated in the available information, several sources highlight a trend of multinational companies divesting from the province's oil sands 10. This exodus raises concerns about the future of Alberta's economy and the potential for stranded assets, which are resources that become uneconomical to extract 11. The fact that some companies received substantial subsidies before leaving adds another layer of complexity to this issue, raising questions about whether these funds were effectively utilized and whether they inadvertently facilitated the departure of these companies.

Some of the companies that have either reduced their presence or completely exited Alberta include:

• Statoil: In 2016, Norway's Statoil sold all of its oil sands assets and left Western Canada due to low oil prices, domestic pressure, and a changing energy market 12. This move by a major international oil company signaled a potential shift in the global perception of Alberta's oil sands and their long-term viability.

• Koch Industries: Koch Industries abandoned plans for its Muskwa oil sands project west of Fort McMurray 12.

• Imperial Oil: The Canadian subsidiary of ExxonMobil wrote down 2.8 billion barrels of its bitumen reserves in Alberta, acknowledging the economic challenges of producing oil sands under prevailing market conditions 12. This decision by a prominent player in the Canadian oil industry further underscores the economic uncertainties surrounding oil sands production.

• ConocoPhillips: Admitted that 2 billion barrels of its oil sands reserves might be uneconomical to produce due to low global oil prices 12.

In addition to these companies, a significant number of other oil and gas companies have ceased operations in Alberta, as indicated by the extensive lists provided in the research 13. This trend suggests a broader industry restructuring and raises questions about the long-term sustainability of oil sands production in the province.

Reasons for the Exodus

Several factors contribute to the departure of oil companies from Alberta:

• Low oil prices: The collapse of oil prices in recent years has made oil sands production less profitable, particularly for companies with higher operating costs 12.

• Global energy transition: The shift towards renewable energy sources and electric vehicles is reducing demand for fossil fuels, putting long-term pressure on the oil industry 15. This global trend is likely to have a significant impact on the future of Alberta's oil sands, as demand for fossil fuels declines and alternative energy sources become more competitive.

• Environmental concerns: Oil sands production has significant environmental impacts, including greenhouse gas emissions and water pollution. Growing concerns about climate change and environmental regulations are making oil sands less attractive to investors and companies 16.

• High production costs: Compared to other oil-producing regions, Alberta's oil sands have relatively high production costs, making them vulnerable to price fluctuations 11.

• Distance from markets: Alberta's oil sands are located far from major markets, increasing transportation costs and making them less competitive 17.

These factors, combined with the increasing availability of lower-cost oil sources elsewhere, have created a challenging environment for oil companies operating in Alberta. The subsidies provided by the government, while intended to support the industry, may not be sufficient to overcome these fundamental challenges, and in some cases, may have simply delayed the inevitable departure of some companies.

Economic and Environmental Impact of Oil Companies Leaving

The departure of oil companies from Alberta has several potential economic and environmental consequences:

• Reduced economic growth: Oil and gas extraction has been a major driver of Alberta's economy. The exodus of companies could lead to slower economic growth and job losses 15. The report models a potential drop in employment from the oil sector of 24,300 full-time jobs per year on average toward 2050 15.

• Weaker income growth: As oil revenues decline, income growth in Alberta may also weaken, impacting household spending and overall economic activity 18.

• Decreased government revenues: Lower oil production and corporate taxes could result in reduced government revenues, potentially impacting public services and infrastructure investments 19. The report models a potential 43% drop in royalties from the sector to the Alberta government 15.

• Stranded assets: As oil sands become less economical to extract, there is a risk of stranded assets, leading to financial losses for investors and potential environmental liabilities 19. Unfunded environmental cleanup costs could be as high as $130 billion 19.

• Environmental impacts: Oil sands production has significant environmental impacts, including the creation of large waste ponds that can leach heavy metals into groundwater and processing plants that release harmful air pollutants 16. These environmental consequences need to be addressed as part of any strategy for managing the decline of the oil industry in Alberta.

These economic and environmental challenges highlight the need for Alberta to diversify its economy and reduce its reliance on oil and gas production while ensuring responsible environmental stewardship. The departure of oil companies, even with government subsidies, underscores the urgency of this transition and the need for a more sustainable economic model.

Public Opinion on Government Subsidies

Public opinion on government subsidies to oil companies in Alberta is divided. While some Albertans support subsidies as a way to maintain jobs and economic activity, others express concerns about the environmental impact of oil sands production and the use of public funds to support an industry facing long-term decline 20. The fact that some companies have received subsidies and then left the province further complicates this debate, raising questions about the accountability and effectiveness of these subsidies.

A 2023 poll found that 70% of Albertans believe the province is too reliant on oil and gas 21. This suggests a growing recognition among Albertans of the need for economic diversification and a shift away from fossil fuel dependence. A majority of Albertans also believe that oil and gas companies, not taxpayers, should be responsible for the costs of cleaning up inactive wells and reducing emissions 21. This finding could have significant implications for future policy decisions regarding environmental liabilities and industry responsibility.

Nationally, a 2018 poll found that 58% of Canadians would be more likely to support a political party that promises to eliminate subsidies to oil and gas companies 22. Only 30% of respondents believed that stopping subsidies would have negative economic impacts 22. This suggests a growing awareness among Canadians of the need to transition to a more sustainable energy future and reduce reliance on fossil fuels.

Adding to the complexity of public opinion, the Alberta government has implemented a pilot program offering $100 million in royalty credits to companies that clean up inactive wells 23. This program raises questions about whether such incentives are necessary and whether they effectively address the issue of abandoned wells, particularly in light of the billions in subsidies already provided to the industry.

Furthermore, Albertans express a desire to avoid the boom-bust cycle that has historically characterized the province's fossil-fuel-dependent economy 24. Nearly eight in ten Albertans want to diversify the province's economy, suggesting a strong public mandate for a more sustainable and resilient economic future 24.

Conclusion

The Alberta government has provided billions in subsidies to oil companies in recent years, yet several of these companies have ceased operations in the province. This trend raises concerns about the effectiveness of these subsidies and the long-term sustainability of Alberta's oil and gas sector. The fact that some of these subsidies have essentially become "going away presents" for departing companies adds another layer of concern to this issue.

The exodus of oil companies is driven by a combination of factors, including low oil prices, the global energy transition, environmental concerns, and high production costs. This trend has potential economic consequences for Alberta, including reduced economic growth, weaker income growth, decreased government revenues, and the risk of stranded assets. Moreover, the environmental impacts of oil sands production, such as water pollution and greenhouse gas emissions, cannot be ignored.

Public opinion on government subsidies is divided, with growing support for a transition to a more sustainable energy future and concerns about the economic risks of continued reliance on fossil fuels. Albertans express a desire for economic diversification and a departure from the boom-bust cycle associated with the oil and gas industry.

These findings suggest that Alberta faces a critical juncture. The province needs to develop a comprehensive strategy for navigating the decline of its oil and gas sector while addressing the economic, environmental, and social challenges associated with this transition. This strategy should include:

• Economic diversification: Investing in renewable energy, technology, and other sectors to create new jobs and economic opportunities.

• Environmental remediation: Addressing the environmental liabilities of oil sands production, including the cleanup of inactive wells and the reduction of greenhouse gas emissions.

• Fiscal responsibility: Managing government finances prudently to ensure the long-term sustainability of public services and infrastructure.

• Public engagement: Involving Albertans in the development and implementation of policies that affect their future.

By taking proactive steps to address these challenges, Alberta can build a more sustainable and prosperous future for its citizens.

Works cited

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