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Providing coverage of Alaska and northern Canada's oil and gas industry
February 2009

Vol. 14, No. 8 Week of February 22, 2009

British Columbia enters deficit country

Gary Park

For Petroleum News

British Columbia, like all other resource-based economies, is going through some painful belt-tightening and downscaling of projected revenues.

In unveiling its 2009-10 budget Feb. 17, the government of Premier Gordon Campbell had to swallow some unpleasant realities in conceding that the recently unthinkable journey into red ink was inevitable.

As a result, Finance Minister Colin Hansen admitted the province is heading for deficits of C$495 million in the new fiscal year and C$245 million in 2010-11 — a forecast that many observers think is overly optimistic.

However the economy unfolds over the next two years, B.C. is no longer able to count on its thriving natural gas sector to offset the beating it is expected to take from a resource basket including lumber, pulp, coal, metals, oil and electricity.

A commodity price surge in mid-2008 is forecast to generate C$1.38 billion in gas revenues for the 2008-09 fiscal year that ends March 31, up from the original budget estimate of C$1.17 billion.

But from there, Hansen’s budget states, an expected slump in revenues from exploration lease auctions will result in a C$1.5 billion drop in gas royalties and sales of land over the three years to 2011-12, with the other resources contributing to a further C$1.4 decline in revenues.

Gas down for a couple of years

The budget estimates gas prices — which have fallen more than 33 percent in North America since 2006 — will average C$6.57 per gigajoule for 2008-09 at plant inlet, then drop to C$5.87 in 2009-10 before recovering to C$6.21 in 2010-11.

“What we will have for the next two years is a short-term deficit, one that results from a downturn in projected revenues,” Hansen said.

“In spite of all our strengths as a province, we are not immune to the impacts of the worldwide economic slowdown.”

The Ministry of Energy, Mines and Petroleum Resources, which has provided strong incentives in the form of reduced royalty payments to boost development of unconventional gas resources, is projecting that even an increase in gas production will not be sufficient to keep overall gas revenues steady.

Hansen held out hope that as the North American economy emerges from recession, energy demand is likely to rise.

To that end, he said the province will invest C$110 million over three years to “encourage further growth and development in the energy sector.”

For the petroleum industry that includes C$94 million for improving roads in remote areas, such as northeastern B.C, to support development of shale and tight gas.

On the stimulus side, B.C. has earmarked C$14 billion for overall infrastructure spending that is supposed to create 88,000 jobs.






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