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Alberta top of class Leads Canada in job creation, economic growth, despite uncertainties over major energy projects; windfall from oil sands forecast Gary Park For Petroleum News
By all rights, Alberta should be reeling and gasping for air.
It has been hammered by a prolonged stretch of lower natural gas prices which reduced its royalty take from the resource to C$1 billion from C$8 billion.
The deep price discounting on North American markets for its crude bitumen and heavy oils have further punished the province’s budgets.
And unmatched opposition has delayed and threatened to scuttle plans for big pipelines to deliver its oil sands production to markets in Canada, the United States and the Asia-Pacific region.
Yet ...
Alberta is credited with creating nine out of every 10 net new jobs in Canada over the past year (82,000 out of a total 94,700), raising its employment growth by 3.8 percent, seven times greater than the national average, and unemployment has dropped to 4.7 percent.
Economic growth in Alberta is forecast at 3.5 percent, far outstripping any other province, while the median hourly wage is almost C$3 above the national average.
Mood upbeat And now, despite the uncertainties hanging over pipelines and the challenge faced by energy companies beyond the majors in raising capital, the mood within Alberta is upbeat.
The forecast result in a new provincial budget is for a windfall from the oil sands over the next three years, with royalties from bitumen targeted at C$5.6 billion in the 2014-15 fiscal year, up C$2 billion from two years ago, and projected to exceed C$7 billion in 2016-17.
Those numbers have enabled Finance Minister Doug Horner to target a C$1.1 billion surplus in the new budget year, ending six straight years of deficits.
But clouds still hang over a government that expects record-high revenues of C$44.4 billion.
It plans to borrow C$5.1 billion for infrastructure alone this year, raising the accumulated debt to C$14.5 billion, just a decade after Alberta led North American jurisdictions in wiping out a debt of C$23 billion.
Horner told the legislative assembly that Alberta, faced with population growth that is triple the national average, “will not sit idle because of some ideology against debt at all costs.”
He said there is no sense for Alberta to spend provincial savings, which earn an 11 percent return, when it can borrow money at less than 4 percent interest.
Horner said rising bitumen output and strong commodity prices will see oil sands projects moving into a higher royalty payout tier as capital costs are paid off.
Investment projected at C$34 billion The province expects overall oil sands investment will reach C$34 billion this year, with production from the resource expected to top 2.8 million barrels per day in 2016-17, an increase of 900,000 bpd in four years.
Before capital payout, oil sands projects deliver 1 percent to 9 percent of gross revenues to the provincial treasury; after payout, that rate is 25 percent to 40 percent of net revenues.
As of a year ago, the government estimated 61 of 112 oil sands projects had moved to the second tier.
Scotiabank commodity economist Patricia Mohr said the forecast for light crude prices could be a shade optimistic, warning there is a “definite risk” benchmark prices could slide across North America in the next few years because of rising U.S. output.
For the 2014-15 fiscal year, the province is counting on West Texas Intermediate prices averaging US$95.22 per barrel, with heavy oil/oil sands prices averaging C$77.18 a barrel.
In addition, auctions of exploration lands are forecast to bring in C$623 million, compared with C$3.3 billion in 2011, but Horner said stagnant gas prices have been a drag on those sales, but he held out some hope that a recovery in the gas sector could encourage exploration and production companies to tackle new formations. Gas prices for the new year are set at C$3.29 per gigajoule.
The 2014-15 fiscal year is expected to generate C$9.2 billion in non-renewable resource revenue, up 6.7 percent from 2013-14.
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