When it came to COVID-19 financial support, the oil and gas industry got put on hold.
Well-funded anti-oil and gas campaigners are using the old magician’s trick of “look over there so you don’t notice what’s going on over here”. For some time we have seen sensational claims the oil and gas industry is receiving billions in subsidies and the campaigns to end them. It’s just the oil and gas industry isn’t getting these subsidies and so their campaigns to end them succeeded before they started. What they are successfully distracting from are the billions in real subsidies for green energy, ironically funded in part with tax revenues from the oil and gas industry.
This magic trick of starting petitions to end nonexistent subsidies depended on using a special definition of subsidies. So they note that things like the discounted price of gasoline in Saudi Arabia increases international demand and thus is a subsidy to the global oil and gas industry. Or they find an economist to say the ‘normal’ royalties on oil and gas should be higher and so the actual rate is a subsidy. In ENGO magic tricks, when you pay cash royalties you are actually receiving government subsidies. Another one of their favourites is to say LNG equipment should be depreciated slowly and so the Government is giving oil and gas companies another subsidy. That’s right when an LNG business pays cash for equipment and puts the expense on their tax return it’s not investing in infrastructure and the economy, it’s a Government subsidy. The list goes on but you can perhaps forgive the confused Chief Financial Officers of oil and gas companies searching with google for where they can apply for the billions in subsidies and finding none.
On the other hand, try googling green energy grants and think how long it would take to go through the 260 million results. When it comes to windmills, solar, biofuel, hydrogen, batteries, fuel cells, electric cars we are talking billions and billions of subsidies. You know the kind where the Government sends you money, not the other way around. The same google search for oil and gas grants turns up only millions. But that’s how magic works, no one notices how the billions disappeared if you are looking over there at a few million.
Though recently ENGOs turned up a real subsidy. During the double whammy of COVID-19 restrictions making it difficult to work and the worldwide complete collapse in oil prices, the industry asked for liquidity support. The Government did in fact put a record number of billions into liquidity support to among other things support the bond market in many companies. The Government did announce several programs to help the oil industry too, but when you tried to access these programs you were told to call your bank or put them on hold while they considered it. The only meaningful support that came through was a $1.9 billion commitment to help abandon wells.
Here are the problems with that support:
- It is being released over time and so almost none of it reached companies while they struggled with a liquidity crisis
- A lot goes to orphan wells and so this only covers liabilities of companies already bankrupt. A subsidy after you go bankrupt is not so useful.
- You can only access the support for part of the cost of abandoning wells if you spend money for the other part. If you need liquidity support because you don’t have liquidity then you can’t access the subsidy.
- When the Government is literally spending hundreds of billions giving $1.9 billion to the country’s largest industry is a drop in the bucket.
So the ENGOs finally found their actual subsidy for oil and gas. A drip going mostly to big foreign oil companies with the money to take advantage of it, while an ocean of COVID-19 dollars floods the markets. Without a doubt, the central theme of this Government is cash subsidies for their much-ballyhooed green recovery. Here are a couple of examples.
A policy brief from the International Institute for Sustainable Development notes that Canada announced almost $15 billion in financial support for “green” initiatives in 2020. That is almost 800% more than the support announced for the much larger oil and gas industry during COVID-19.
Perhaps the biggest Canadian example of “green” subsidies comes from the disastrous Green Energy Act in Ontario. According to the Auditor General of Ontario, from 2006 to 2014, Ontarians unwittingly subsidized their “green” energy plan to the tune of $37 billion from the Global Adjustment fees on their power bills.
If you are looking for Government subsidies it’s best to look at green corporate welfare. In the meantime, the oil and gas industry will keep the $1.9 billion as it’s the most and best they can hope for.