courtesy Petro-Canada

The Organization for Economic Cooperation and Development has urged Canada and its oil-sands province Alberta to invest in a Norway-style sovereign wealth fund to curb the killer effects on local industry of an oil-inflated Canadian dollar.

The Canadian government is already considering the idea of putting commodity royalties into a Norway-style pension fund, however Canadians have preferred local investment in their giant country rather than investments in financial and physical assets abroad, as with the Norway model.

The Norwegian “Oil Fund” was created to pass wealth to post-oil generations of Norwegians.

In an interview with Bloomberg News on his away to Japan, Canadian Finance Minister Jim Flaherty said he was “intrigued” by the OECD proposal this week that Canada save its oil revenues.

The dangers, the OECD said, was “Dutch disease”, an affliction named in the 1970s, when offshore gas stymied The Netherlands' economy by stirring a hunger for its currency.

Alberta, meanwhile, was told to change its Heritage Fund into an oil-based foreign asset fund, “as Norway does, spending only smoothed yearly fund income”.

As for the rest of Canada: Tax policies for the oil and gas sector must be updated for the era of high oil prices by removing some federal deductions for exploration; royalties should be streamlined to capture “pure economic rents” and “removing the exploration/production requirement for tenure rights”.

ws@scandoil.com