Alberta’s Carbon Tax: The Right Tax at the Right Time?
It used to be very clear that Alberta had a spending problem and not a revenue problem. However, since the 2014 oil crash, the world and Alberta have forever changed. Historically, oil ‘busts’ were the result of a downturn in some key economy that reduced the demand for oil & gas products. Today we have the worlds first notable price downturn caused by over production of oil, with no end in site.
This over production was started intentionally by Saudi Crown Prince Mohammed bin Salman in an effort to kill shale oil fracker’s and other non-state owned small players. The idea was to have OPEC lead an over production that would drop the price of oil for a few years and force the marginal upstart players (i.e. US based frackers) out of the industry. Then Saudi lead OPEC would reduce supply and drive the price back up. Well, the Crown Prince was wrong and it didn’t work.
More importantly it won’t work in the future. Saudi Arabia and friends can reduce the global price of oil by increasing production but they can no longer raise the price because they no longer control the global output, here’s why:
- American fracking companies scale up their oil production in a matter of weeks
- Canadian oil sands in Alberta and Saskatchewan have vast reserves backed by billion dollar upgrader investments that just keep coming online
- Iran, which has had its oil embargoed for decades, now is pushing 3 billions of barrels onto the open market as of the 2017 lifting of sanctions
- OPEC nations like Venezuela and Nigeria are desperate states the need cash and they will continue to cheat their OPEC agreements and produce produce produce
- Putin and Russia so desperately want to be a world powerhouse but only has an economy the size of Spain’s, with 20% of its citizens without even running water. The Russian federal government gets nearly HALF of its revenue from oil so when the price drops, they just produce more which keeps pushing the price down.