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Gas Still King in Alberta, Despite Upstart Oil Sands Development

Oil sands are emerging as Alberta's celebrity product, but the province still owes much of a developing economic boom -- and the capital to finance the new star -- to its long-standing status as Canada's chief natural gas-producing jurisdiction.

Gas sales of C$31.6 billion (US$27 billion) accounted for 40% of a record C$79.2 billion (US$67.3 billion) in total exports to all countries by all Alberta industries during 2005, new provincial trade figures show. Apart from minor shipments of liquid byproducts, virtually all gas exports went to destinations across the United States from California to New York.

While gas export volumes held steady at about 8 Bcf/d, rising prices powered a 27% jump in the value of U.S. shipments compared to 2004. Oil placed second in the Alberta export portfolio with 2005 shipments of C$24.6 billion (US$21 billion), up 21% from the year before.

While fully "upgraded" oil sands synthetic crude fetches prices close to the refinery-ready WTI benchmark grade, unprocessed bitumen is discounted by 30% or more. Gas borders on Alberta's only significant commercial link with some jurisdictions. Counting energy exports, New York State, for instance, is the second-biggest destination for Alberta products in a trade flow that rose 27% last year to C$9 billion (US$7.7 billion). But excluding gas, Alberta shipments to New York were C$225 million (US$191 million) in 2005, down 22% from the previous year, and the state was the 22nd-ranked destination for provincial exports.

Energy products likewise dominated Alberta's biggest single export trade relationship, which is with Illinois as a prime destination for crude oil as well as gas produced in the province via pipeline connections dating back to the 1950s as foundations of the Canadian petroleum industry. Of C$13 billion (US$11 billion) in Alberta exports to Illinois in 2005, oil fetched C$7.4 billion (US$6.3 billion) and gas was C$4.9 billion (US$4.2 billion).

The role of gas as Alberta's prime economic driver stands out even more clearly in the provincial public accounts. Health, education, welfare and all other provincial services rely heavily on gas production, the latest government financial statements show. For the provincial government's current fiscal year, ending March 31, the finance department projects gas royalties will be C$8.2 billion (US$7 billion) from production fetching an annual average price of C$8.40 per gigajoule (US$7.50 per MMBtu).

Gas royalties, levied on a sliding scale that varies with considerations ranging from prices to well depths and productivity, can approach 30% in the case of top producing fields. Gas accounts for 57% of total Alberta natural resource revenues projected to reach a record C$14.3 billion (US$12 billion) for the 2005-06 fiscal year including C$3.4 billion (US$2.9 billion) from sales of oil, gas and oil sands mineral rights. About 80% of mineral rights in the province belong to the government and are known as Alberta Crown lands.

Cash generated by natural resource royalties and mineral rights sales in turn account for 42% of the province's projected C$34.6 billion (US$29.4 billion) total revenues from all sources for the current fiscal year ending March 31. The figures understate the role of gas in the provincial finances because its spin-off share in other revenue sources such as corporate and personal income taxes. Even the Alberta government's combined vice tax take on tobacco, gambling and liquor -- C$2.6 billion (US$2.2 billion) -- this fiscal year is only 32% of provincial gas royalty revenues.

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