Alberta’s Good Fortune

Blog, Commentary, Energy, Les Routledge

When I read a news item like this one profiling the riches that Alberta is reaping from the natural, non-renewable resource asset base, I often try to simplify it to making an analogy to my own farm.  I own 200 acres of land that most years will produce a bit of positive income.

If I was to pursue the Alberta strategy, I would start to sell off one square meter of that land every day to increase my apparent income. In reality, what I would be doing through that tactic is converting my fixed asset base into cash and the cash flow is not income at all, but rather is a slow liquidation of my fixed assets. Selling one square meter of land per day would not significantly deplete my asset base in the short term, but if it continues over time, there is an end point when either I run out of land or the remaining land is not attractive to buyers. One way or another, converting fixed assets into cash flow is a time limited business strategy.

When I look at the Alberta government and their practice to treat cash flow coming from non-renewable resource extraction as current income, I get very pessimistic about the future of Alberta. The province is slowly but surely depleting its natural resource base and is not replacing those fixed assets with others that will produce future income. It may take 50 years or it may take 100 years, but eventually the province is going to have sold off all its assets.

What will they do for income at that point?