A strengthening economy with more jobs and a lower-than-expected deficit are highlights the Alberta government is touting as it releases its third-quarter financial update. But access to tidewater for Alberta bitumen is a pressing concern for the government, hungry to not leave money on the table on the sales of heavy oil.
The 2017-18 deficit is now forecast at $9.1 billion, down $1.4 billion from the 2017 budget. The government said higher revenue, as well as the removal of the $500-million risk adjustment cushion in the budget, are responsible for the reduction.
Expenses have increased by $1 billion from budget 2017 – to $55.9 billion– due to increases to social programs, disaster assistance and re-profiled municipal capital grants.
According to the report, Alberta’s real gross domestic product (GDP) is estimated to have expanded by 4.5 per cent in 2017, with a forecasted growth of 2.8 per cent in 2018. It’s the third time growth has been revised up since the 2017 budget was released.
LISTEN: Finance Minister Joe Ceci joins Calgary Today following the announcement
An improved labour market also leaves the government feeling bullish with 90,000 jobs added in 2017. The government said while the tally of jobs lost during the recession has been recovered, the type of jobs may not be what they once were.
“Alberta’s economic growth and broad-based recovery show that we made the right choice in the face of the worst recession in a generation,” said Finance Minister Joe Ceci. “Our choice to invest in Albertans, build infrastructure and carefully find savings—without firing thousands of teachers and nurses—is paying off.”
“Our thoughtful and prudent approach has led to Alberta’s deficit dropping and the economic recovery strengthening. We will continue to work hard to ensure this recovery reaches all Albertans.”
Getting Alberta bitumen to market has been a hot talking point for the Rachel Notley government in recent weeks in its ongoing battle with British Columbia on the Kinder Morgan Trans Mountain expansion project. The fiscal update takes pains to highlight market access as an area of note.
As an example, the report points to an outage on the Keystone pipeline in November 2017 which has caused it to operate at reduced pressure ever since.
“With the Enbridge Mainline system full, inventories began to pile up in Alberta and shippers had to scramble to find alternate means of transport,” the report said.
Watch below: City of Edmonton chief economist John Rose speaks about the federal budget’s impact on Edmonton, and why what the province does in its budget is important to the city.
With rail not being “nimble enough” to fill the gap, the report said the price differential has widened from US$14 per barrel to US$28 per barrel. The result is Alberta heavy oil producers are leaving $30-$40 million dollars per day on the table.
Conversely, the Trans Mountain expansion project would allow Alberta to sell its heavy oil into the Pacific market for US$65 per barrel, while the Keystone XL project would increase access to the Gulf Coast where heavy oil is fetching US$59 per barrel.
Bitumen royalties have been revised down by $188 million from budget 2017.
Among the revisions to the province’s economic assumptions, they now peg West Texas Intermediate crude at $54.00 per barrel, down $1.00 from the budget but up from second quarter assumptions. The Alberta Reference Price of natural gas has been revised down to $1.90 per gigajoule. The Canada-US exchange rate has been revised up 2 cents to 78 cents.
The province is also revising its budget 2017 projections for income from tobacco tax, liquor and gaming revenues with the trio bringing in $45 million less than expected.
The 2018 Alberta budget will be tabled on March 22.