On properties of royalty and tax regimes in Alberta's oil sands

Simulation models that include royalty and tax provisions are used to examine the distribution between developers and governments of net returns from the development of Alberta's oil sands deposits. A specific focus is to assess the effects on the level and distribution of net revenues associated with a number of changes in assumed revenue and expenditure conditions. Developers typically bear a greater share of the consequences of variations in capital expenditures than they do of changes in operating expenditures, prices, and exchange rates. A comparison across royalty and tax regimes suggest that there is a positive relationship between the level of net revenues estimated to accrue to either developers or governments and the share of the consequences of changes in conditions borne by that party. Some differences across production technologies are noted. The role of the federal government as a fiscal player in oil sands development has shrunk over time. In contrast, under the current regime, the Government of Alberta captures a higher share of net returns and typically bears a greater proportion of the consequences of changes in conditions than at any time since the introduction of an explicit royalty and tax regime in 1997

Portfolio diversification in energy markets

This paper's results indicate that futures for crude oil, natural gas and unleaded gasoline fail to enhance the performance of representative energy stocks in terms of return to risk, but do decrease the overall level of risk exposure borne by passive equity investors. Our findings suggest that futures contracts on energy commodities are valuable to market participants with an interest in hedging against price fluctuations in energy markets by buy-and-hold strategies. However, this conclusion is reversed when one takes the perspective of traders whose core interests can be better approximated through the return to risk-bearing. In fact, this paper documents that return-to-risk maximizing agents are unlikely to profit from trading energy futures in addition to energy stocks. Moreover, futures for energy commodities fail to offer significant diversification gains with respect to energy stocks once investors adopt simple dynamic trading strategies that rely on readily available pricing information

Spanning with futures contracts

Regression-based testing techniques have long been used to quantify whether the efficient frontier of a set of assets spans the frontier of a larger collection of investments. This paper derives regression-based spanning tests for the case in which the investment possibilities set contains, or is constituted by, futures contracts for which marked-to-market margins are explicitly taken into account. Two empirical applications illustrate our results

Crude oil prices between 1985 and 1994: How volatile in relation to other commodities?

It is said that since the mid-1980s oil has become a commodity like others, and exhibits noticeable price volatility. How then do oil price fluctuations compare with those of other commodities? To address this question, we examine three aspects of price volatility for two marker crude oils and nine other widely traded commodities. Our results suggest that between 1985 and 1994 crude oil is in the upper end of the range of all measures of price volatility studied, but is not clearly beyond the bounds set by other commodities. Implications of this result for the oil industry are discussed

Government policy and access to natural gas service in Canada

Following the world oil price shock of the early 1970s, departments and agencies of the governments of Canada and of a number of provinces spent in excess of US $1 billion on programs aimed at encouraging natural gas utilities to expand their distribution systems. The authors describe these programs and the associated public expenditures in each province, and examine their effects on the construction activities of utilities. Using an annual series on access to gas service constructed for each province for the period 1961 to 1990, the effects of these programs on changes in access and on how such access has evolved relative to changes in the pipeline distribution system are examined. -Author

Smaller and smaller? The price responsiveness of nontransport oil demand

Despite a sharp decrease in world oil prices in 1986 that was sustained for almost 15 years, nontransport oil demand growth has remained rather weak in most industrialized countries. We implement various approaches to modeling this observed phenomenon using data for Canada, France, Japan, the U.K., and the U.S. In general, we find that nontransport oil demand has become less responsive to own-price changes, and that specifications allowing for different components of prices to induce different demand responses tend to dominate specifications that exclude this feature. Further, incorporating this feature in a model that allows elasticities to vary over time appears to provide a more appealing characterization of the evolution of nontransport oil demand during the last three decades

A systems approach to modelling asymmetric demand responses to energy price changes

Analyses of asymmetric demand responses to price changes have typically been undertaken within a single-equation framework. We generalize an approach involving decompositions of the price variables by extending its treatment to the case of multiple inter-related demands. The resulting systems approach is applied to the case of energy use in the residential sector of Ontario (Canada), alternately using real and relative prices as explanatory variables. The consequences on some standard properties of demand systems (homogeneity and symmetry) are also investigated. In addition, we outline and implement an approach to testing for the existence of asymmetric demand responses in the context of multiple energy sources. In the data set considered, our results suggest that demands for these energy sources were characterized by asymmetric responses to price changes, even after allowing for inter-fuel substitution