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Alberta becoming less conventional Province 2005-06 budget predicts drop in gas and oil production, increase in oil sands and heavy oil production Gary Park Petroleum News Calgary Correspondent
Alberta is not about to be deposed as Canada’s energy stronghold, but the next three years will see a sharp decline in conventional oil and natural gas production and an equally strong reminder of a growing dependence on the oil sands.
The province’s 2005-06 budget predicts gas output will slide from 5.14 trillion cubic feet to 4.87 tcf in 2007-08, at which point many forecasters expect the downturn will accelerate.
Conventional crude, which averaged 590,000 barrels per day in 2004-05, is predicted to shrink to 513,000 bpd in 2007-08.
But oil sands and heavy oil production will contribute to an overall increase in oil volumes, rising from 981,000 bpd in 2004-05 to 1.396 million bpd by 2008.
If the government’s commodity price forecasts are accurate, non-renewable resource revenues, which have averaged about C$8 billion over the last five years, will deliver C$7.68 billion this fiscal year — or 28 percent of provincial revenues — then slip under C$7 billion in 2006-07 and under C$6 billion in 2007-08.
There is a cap of C$4.75 billion in resource revenues that can be used for budget purposes, with any excess being directed into a Sustainability Fund.
Royalties from synthetic oil and bitumen, which will be about C$674 million for the fiscal year just ended, are budgeted to slump to C$393 million this year, then take an upturn to C$560 million in 2006-07 and C$710 million in 2007-08.
Natural gas and byproducts royalties are forecast at C$5.42 billion for 2005-6, almost C$1 billion below last year, while crude oil royalties will decline to C$923 million from C$1.2 billion. Budget based on ‘prudent’ prices But Finance Minister Shirley McClellan said the government is sticking with its “prudent” pricing forecasts.
The new budget is based on average oil prices of $42 per barrel WTI and C$5.91 per thousand cubic feet for AECO spot prices.
Oil prices are forecast to moderate as global production increases “in response to historically high prices,” dropping to $31 per barrel by 2007-08. Gas is also expected to edge down to C$5.48 per mcf within three years.
Pending final figures, Alberta is counting on a 2004-05 budget surplus of at least C$4.3 billion.
After hiking program spending by 5.9 percent, the 2005-06 surplus is pegged at C$1.5 billion.
The province is entering the new fiscal year debt free for the first time in 18 years.
The budget also offers about C$250 million in research and development money over the next five years, including C$200 million for an Innovative Energy Technologies program, aimed at developing technologies to enhance oil and gas recovery, that will give qualifying companies royalty adjustments of up to 30 percent of approved project costs.
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