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March 2010

Vol. 15, No. 11 Week of March 14, 2010

British Columbia cuts resource budgets

Money diverted to health care, education, in anticipation of C$1 billion decline in resource sector revenues over next 3 years

Gary Park

For Petroleum News

In what some critics see as biting the hand that feeds British Columbia revenues, the provincial government plans to divert spending in its key resource departments — energy, mines and forestry — by C$320 million over the next three years to support health care and education programs.

It’s a swift response to projections in the 2010-11 budget, released March 2, that gas and lumber royalties will fall C$1 billion by 2013 over what had been forecast just six months ago.

The downturn started in the current fiscal year, which ends March 31, with revenues from the gas sector being lowered to C$464 million from the budgeted C$522 million, after averaging more than C$1 billion a year in the three previous fiscal years.

However, despite the scaling back of royalty targets over the next three years, the government expects a recovery to C$698 million in 2010-11, then C$1 billion and C$1.2 billion for the following two years, reflecting anticipated growth in shale gas development and solid gains in commodity prices.

Gas prices at British Columbia’s plant gates for 2009-10 are expected to average C$3.06 per gigajoule, down 45 cents from the September estimate, and are forecast to climb to C$4.29 in 2010-11, then C$5.09 and C$5.38 in the succeeding years. Every C$1 change in price generates an extra C$255 million to C$305 million in revenues.

Abundance of gas

Energy Minister Blair Lekstrom said he takes a positive view of industry expectations that North America will have an abundance of gas from the continent’s shale plays.

“Natural gas is the cleanest burning fossil fuel we have. Everybody is looking towards cleaning up the environment, working at reducing greenhouse gas emissions.”

He said the challenge for the gas industry is to open up new markets, especially by using gas rather than coal to generate electricity in the United States.

Also on the horizon is the possibility of using gas as a transportation fuel.

In addition, Lekstrom believes LNG exports, starting with the Kitimat LNG project, will play a key role in the province’s gas development.

The government estimated British Columbia’s remaining gas reserves were 21.37 trillion cubic feet at the end of 2008, the eighth successive year of increases, including a sharp rise of 5.7 tcf since 2005.

Gavin Dirom, president of the Association for Mineral Exploration B.C., said that despite the revenues forecasts for the resource sector, the government has opted to cut the budget for the Ministry of Energy, Mines and Petroleum Resources by 14 percent, following a 4 percent trimming in 2009.

Revenue growth projected

Finance Minister Colin Hansen said British Columbia’s stimulus packages, including royalty initiatives, are contributing to a strong performance by the oil and gas industry.

As a result of the initiatives and forecast improvements in the marketplace, revenues from the industry should grow by an annual average of 39 percent over the next three years, he said.

British Columbia enjoyed five straight years of budget surpluses before the recession, but is now in the first of four anticipated deficit years, starting with C$2.8 billion in 2009-10, C$1.7 billion in 2010-11, then C$945 million and C$145 million.

Hansen said overall spending has to be reined in if British Columbia is to regain a surplus, thus government budget growth is being held to an average 2.34 percent while a 7.3 percent decline in revenue over the last three years has time to close the gap.

The government is targeting 2.2 percent economic growth this year, 2.3 percent in 2011 and 2.7 percent in 2012, but concedes it is uneasy about the prospect of a “double-dip” recession in the United States if fiscal and monetary stimulus spending is prematurely ended.






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