How does increasing oil and gas royalties affect Alberta's economy?

Answer 1

Negatively. Check out Jane Jacobs' beautiful little pamphlet:

A Question of Separatism: Quebec and the Struggle over Sovereignty, New York: Random House, 1980.

A little less pointed, but equally relevant, are some of her other books, such as:
The Economy of Cities, New York: Random House, 1969.

As a general rule, bonanzas, especially bonanzas based on extractive industries are bad for the social fabric.

One factor is that people work to get a share of the big pie instead of creating lots of new pies.

For a parallel situation, look at the Alaskan economy, how little it has developed, and what's happening now that the flow of oil royalties is slowing down.

The cliche about "easy come easy go" has experience behind it.