Providing coverage of Alaska and northern Canada's oil and gas industry
January 2006

Vol. 11, No. 1 Week of January 01, 2006

Energy shapes Canadian economy

CIBC chief economist points to possible C$19 billion budget surplus in Alberta, triggering a shift of money and workers

Gary Park

Petroleum News Canadian Contributing Writer

An economic gulf is opening in Canada between those who produce oil and natural gas and those who merely consume the resources.

Forecasting that oil prices will jump about 20 percent in 2006 to US$70 per barrel and gas prices will get pulled along to US$13 per million British thermal units, CIBC World Markets predicts that the four dominant petroleum-producing provinces — Alberta, British Columbia, Saskatchewan and Newfoundland — will all exceed Canada’s 2.9 percent Gross Domestic Product increase in 2006.

The other six will hover between 1.5 percent and 2.5 percent, while Alberta rockets to 7.1 percent, Newfoundland hits 6 percent, British Columbia edges above 4 percent and Saskatchewan reaches 3.7 percent.

For the most populous and industrial provinces of Ontario and Quebec, GDP will flounder under 2 percent and their economic growth slows under the weight of high energy prices, rising interest rates and a stronger Canadian dollar.

Alberta: the money pours in

For Alberta it shapes up as a case of the province attaining a level that most governments and individuals dream of — it just sits back and watches the money pour in.

CIBC chief economist Jeffrey Rubin said Alberta’s budget surplus could climb to breath-taking levels of C$19 billion, giving the province the ability to eliminate income taxes entirely and skew the national economy in the process.

Rubin expects there will be at least some tax cuts, opening the door to an exodus of corporate head offices from Toronto to Calgary.

He said “people and capital will vote with their feet,” turning Alberta into a haven for money and workers.

The Toronto-Dominion Bank differs with the CIBC only in degree, said TD deputy chief economist Craig Alexander.

His bank is counting on oil easing to US$50 per barrel as the U.S. economy gears down, but even at that level Alberta will continue to accumulate budget surpluses in the billions and its economy will expand by 3.7 percent.

A further downside for Ontario and Quebec in particular is the prospect that Alberta’s rapid expansion will force the Bank of Canada to hike interest rates to head off inflation.

Alberta expected to have record exports

Unless oil and natural gas prices take a tumble, Alberta expects to exceed a jaw-dropping C$70 billion in goods and service exports in 2005, eclipsing the record C$66 billion set in 2004.

To the end of October, Alberta exports had tallied C$63.2 billion, up 16 percent from the same period of 2004, according to Canadian government departments.

Economic Development Minister Clint Dunford said the returns are “probably without precedent in Canada.”

He conceded energy has a “lot to do with it, but Alberta also benefits from higher productivity levels than the rest of Canada.

The statistics show that energy shipments from Canada netted C$9.2 billion in October alone, shouldering aside the perennial leaders — manufactured goods at C$7.9 billion and automobiles C$7.8 billion — contributing to Canada’s overall trade surplus for the month of C$7.2 billion.

Higher natural gas exports were the “main contributor” to a 2.3 percent gain in U.S.-bound exports during the month, while shipments to all of Canada’s other trading partners fell a combined 4.5 percent.

Rising oil and gas prices have underpinned a surge in the value of the Canadian dollar this year against its U.S. counterpart. It has climbed 5.6 percent this year and 37 percent since the start of 2003.

But Rubin warned that if the dollar climbs from its latest peak of 87.45 cents against the U.S. dollar to 90 cents, Canada’s manufacturing sector will take a hit.

Canada heads for new gas export marks

The value of Canadian natural gas exports to the United States was rapidly closing in on a new record with three months of the year left, according to the latest data from the National Energy Board.

To the end of September, revenues from exports were just C$3.5 billion short of the 12-month record of C$26.7 billion established in 2004.

Statistics from the regulator showed exports for the January-September period fetched C$23.21 billion, C$3.87 billion ahead of the same pace last year.

Export prices for September averaged C$10.47 per gigajoule, up close to 81 percent from 2004’s comparable returns of C$5.80, while the nine-month average was C$7.84, up C$1.09 per gigajoule.

Canadian gas accounts for 85 percent of U.S. imports, “demonstrating again the importance of Canada’s natural gas industry to meeting U.S. demand,” said the U.S. Energy Information Administration.

September volumes were 299 billion cubic feet, 3.8 percent higher than the same month of 2004, but the only increases were posted in the Pacific Northwest, up 28.6 percent to 33.4 bcf, and the Northeast, up 17 percent at 105.6 bcf. The Midwest was off 4.3 percent at 121.5 bcf.

—Gary Park

Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
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