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Alberta feeling the budgetary pain Province floundering in budget deficits not seen in 20 years; faces return to debt; critics call government price forecasts misguided Gary Park For Petroleum News
Alberta, the engine of Canada’s petroleum industry, faces a “lot of pain” in its next fiscal year, warns Finance Minister Doug Horner.
The province is already floundering in budget deficits not seen in 20 years and faces the specter of a return to debt, most of the downfall blamed on what the government calls a “bitumen bubble” and what critics say are its own misguided forecasts.
When the province released its 2013-14 budget, Jack Mintz, who holds the chair of public policy at the University of Calgary, said the document contained “no plan except for hope — hope that (oil and natural gas) prices come back.”
Premier Alison Redford described the budget as a “once-in-a-generation” opportunity to change Alberta’s financial course.
In the meantime, financing the government’s capital spending plans will require borrowing C$12.7 billion by 2015-16.
Opposition leader Danielle Smith said it took a generation from the early 1990s to wipe out Alberta’s C$23 billion debt and predicted a debt of C$17 billion in time for the next election in 2016, suggesting it will take another generation to pay off the debt accumulated under Redford.
The government attempted to soften the deficit and debt blow by promising a law ensuring debt-payment costs never exceed 3 percent of the operating budget.
Plunge in resource revenues Horner said the plunge in natural resource revenues, dragged down by weak natural gas prices and the “bitumen bubble” resulting from the price differential between Alberta’s mainstay heavy crude and West Texas Intermediate light crude.
Resource royalties are forecast at C$7.25 billion for the year which starts April 1, compared with the C$11.67 billion it had earlier projected.
“Despite challenging conditions in the marketplace due to restricted crude oil pipeline capacity that resulted in favorable heavy oil prices and growing US oil production, the industry continues to invest,” Horner told reporters.
“The ‘bitumen bubble’ seems to have a severe impact on our total earnings and has led to a drop of C$6.2 billion in revenues from our oil and gas sector. We need better market access as that will fetch our producers an international price,” he said.
Despite unchanged spending from the current budget year that ends March 31, Alberta will post a C$2 billion deficit, about half the current year’s estimated C$3.9 billion.
Bitumen revenues down Royalties from oil sands bitumen are estimated at C$3.37 billion for 2013-14, down from the current year’s C$3.8 billion, but the government is targeting C$6.69 billion in 2015-16.
Crude oil royalties are estimated at C$1.62 billion, down C$290 million from the year ending March 31, reflecting an increase in production from horizontal wells, which are eligible for a special royalty rate of 5 percent in the first year and 5 percent for an additional one to three years depending on well depths.
The budget is based on an average WTI price of $92.50 per barrel, while Western Canada Select at Hardisty, Alberta, is expected to average C$68.21, down slightly from the C$68.91 per barrel for 2012-13.
The Western Canada Select/WTI price differential for the new budget year is expected to be 27 percent compared with 26 percent in 2012-13, a spread the government expects will narrow to 22 percent in 2014-15 and 19 percent in 2015-16 as North American pipeline capacity, upgrading capacity in the U.S. and access to Gulf Coast refineries all increase.
Conventional crude steady Alberta’s conventional crude output is expected to remain steady at 550,000 barrels per day, while raw bitumen production is forecast to climb to 2.14 million bpd from 1.92 million bpd in 2012-13.
Natural gas revenue, once the government’s revenue windfall, is expected to generate C$965 million in the upcoming year, compared with C$554 million in the 2012-13 year.
The government expects natural gas prices to average C$3.07 per gigajoule at the AECO Hub, compared with its revised forecast of C$2.26 for 2012-13, down from its budget target of C$3.
Gas production is forecast to drop to 3.87 trillion cubic feet, a sharp decline from the current year’s 4.18 tcf.
Returns from government land auctions are expected to reach C$1.15 billion, compared with C$1.06 billion for 2012-13, barely half the original budget forecast.
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