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

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  • Hotz, Joffre
  • Unterschultz, James R.

Abstract

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.

Suggested Citation

  • Hotz, Joffre & Unterschultz, James R., 2009. "Hedging Alberta Government's Oil and Gas Revenue: Is Acting Like a Farmer a Viable Strategy?," Staff Paper Series 91401, University of Alberta, Department of Resource Economics and Environmental Sociology.
    • Handle: RePEc:ags:ualbsp:91401
    DOI: 10.22004/ag.econ.91401
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    References listed on IDEAS

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    1. Robin Boadway & Masayoshi Hayashi, 2004. "An Evaluation of the Stabilization Properties of Equalization in Canada," Canadian Public Policy, University of Toronto Press, vol. 30(1), pages 91-109, March.
    2. Michael Smart, 2004. "Equalization and Stabilization," Canadian Public Policy, University of Toronto Press, vol. 30(2), pages 195-208, June.
    3. T. Snoddon, 2004. "Budgetary shocks and revenue adjustment: How governments respond to unexpected fiscal shocks," Economics of Governance, Springer, vol. 5(2), pages 149-166, July.
    4. Mr. James Daniel, 2001. "Hedging Government Oil Price Risk," IMF Working Papers 2001/185, International Monetary Fund.
    5. Boadway, Robin & Hayashi, Masayoshi, 2003. "An Evaluation of the Stabilization Properties of Equalization in Canada," Queen's Economics Department Working Papers 273442, Queen's University - Department of Economics.
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    Cited by:

    1. Jamshed Y. Uppal & Syeda Rabab Mudakkar, 2014. "Mitigating Vulnerability to Oil Price Risk— Applicability of Risk Models to Pakistan’s Energy Problem," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(3), pages 293-308.

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