Hedging Alberta Government's Oil and Gas Revenue: Is Acting Like a Farmer a Viable Strategy?

The provincial government of Alberta in Canada experiences significant annual revenue variability arising from changes in crude oil and natural gas prices. This research evaluated whether Alberta’s non-renewable revenue risk could be managed using a derivatives hedging program. Results from a historical hedging simulation approach suggested that such a program would not have been the most effective method of managing revenue risk over the period of 1995-96 to 2003-04. Total impacts of hedging would have varied from Can-$8 Billion to Can$6 Billion over this time period. These results suggest the Alberta government explore alternative methods to manage non-renewable resource revenue risk.Government Hedging, Risk Hedging, Public Economics, Resource /Energy Economics and Policy, Risk and Uncertainty, Q480, G11,

Hedging Alberta Government's Oil and Gas Revenue: Is Acting Like a Farmer a Viable Strategy?

The provincial government of Alberta in Canada experiences significant annual revenue variability arising from changes in crude oil and natural gas prices. This research evaluated whether Alberta’s non-renewable revenue risk could be managed using a derivatives hedging program. Results from a historical hedging simulation approach suggested that such a program would not have been the most effective method of managing revenue risk over the period of 1995-96 to 2003-04. Total impacts of hedging would have varied from Can-$8 Billion to Can$6 Billion over this time period. These results suggest the Alberta government explore alternative methods to manage non-renewable resource revenue risk