The Financial Report notes that according to Wood MacKenzie, an international energy research firm:

The Alberta government would knock US$26-billion off the value of 28 projects in operation and under development in Alberta’s oilsands if it adopts proposals to increase taxes and royalties from the energy sector by 20%.

The conclusion of Wood Mackenzie is that it expects that projects still under development would be hardest hit, suffering an erosion in value averaging 30%. The article reports that Wood Mackenzie stated that:

“[Proponents] might slow down or shelve some of these projects in the long term and negate the benefits that the Alberta government seeks through near-term increases in royalties. Clearly, what we have here is an increase in risk across the board, and it all depends on whether that is something the companies are willing to accept, or whether they decide now is not the time to go forward.”

If the report is correct projects that are not viable in the sense that Alberta residents will not receive their fair share of royalties if they proceed may be shelved. Should this be a concern? Do Albertans’ want to destroy the boreal forest under which the tar sands are found in circumstances in which they will not receive fair compensation? A project is only truly economically viable if all of the factors, both its benefits and consequences are taken into account and there is an acceptable profit margin. If the oil companies and their shareholders are not prepared to accept a lower profit margin to develop a resource which will pay dividends for decades in a politically stable climate perhaps they should invest elsewhere.

In reality I doubt the findings of Wood McKenzie are accurate. They found that the 28 mining and in-situ projects’ combined net asset value of US$200-billion would decline by an average of 13% provided all go ahead, and assuming oil prices stay constant at US$50 a barrel over their productive lives. What do you think the chances are that oil prices will stay constant at US$50 a barrel? Maybe Wood McKenzie needs to rework their numbers.