Deficit revised to $7.5 billion but Alberta grapples with oil price differential
Alberta’s finance minister says the widening gap in the price Canadian oil is fetching won’t affect this year’s budget, but if left unchecked it will mean hard times ahead.
“Alberta’s energy industry drives the national economy, and a hit to Alberta’s bottom line is a hit to the Canadian economy,” Joe Ceci said Friday after releasing the second-quarter update for the provincial budget.
“The oil price differential is a crisis for Alberta and a crisis for Canada. The federal finance minister called it a national problem. I agree.”
Alberta oil is fetching far less by comparison on the market due to a supply glut, growing inventories and a pipeline bottleneck.
The province’s revised forecast predicts a further slight drop in the projected deficit to $7.5 billion when the fiscal year ends March 31.
That’s due mainly to higher-than-expected revenue from personal income taxes and $1.3 billion more than predicted in bitumen and crude oil royalties.
But those numbers are predicted to slip as the discounted price of Canadian oil creates a domino effect on Alberta’s economy.
Earlier this week, Premier Rachel Notley announced Alberta is buying rail cars to ship another 120,000 barrels of oil per day with a deal expected to be finalized within weeks.
Enbridge’s Line 3 pipeline from Alberta to Wisconsin, expected to start up in late 2019, is also expected to alleviate the problem.
However the critical Trans-Mountain pipeline expansion, tripling capacity to get more oil to tankers on the B.C. coast, remains in limbo as the federal government holds further consultations and environmental assessments.
Notley has criticized Prime Minister Justin Trudeau’s government for not helping out on the rail purchase, and Ceci suggested Alberta’s distance from central Canada is playing a role.
“So far (the federal government) has responded to Alberta workers with platitudes,” he said.
“If we were Bombardier or the auto industry, the federal government would have no problem stepping in and helping.”
The Opposition United Conservatives and the Alberta Party have urged Notley to legislate a cut in oil production to prop up prices and potentially forestall deeper cuts or job losses in the near term.
Notley has said she will consider the idea, but has not acted on it.
United Conservative finance critic Drew Barnes labelled it a major opportunity lost with billions of dollars in earnings at stake.
“(Mandatory curtailment) is a temporary solution. We’ve proposed a sunset clause,” said Barnes.
“I think Minister Ceci is absolutely hiding from the current truth right now.”
The province estimates the bottleneck costs Canada $80 million a day in lost profits.
The province’s oil benchmark Western Canadian Select has traditionally sold for less than its North American counterpart — West Texas Intermediate — due to issues such as higher transportation costs.
Those problems have intensified in recent weeks. The oil price differential, expected to be US$22.40 a barrel this fiscal year, is now forecast to be US$29.25.
Alberta is revising down its growth forecast. Real GDP is expected to be 2.5 per cent, down from 2.7 per cent predicted in the budget.
Housing starts and the pace of consumer spending are slowing down, and oil sands investment is expected to remain weak in 2019.
The debt is expected to hit $52.8 billion.
Ceci noted there are positive signs. The province has added 42,000 jobs since this time in 2017, manufacturing sales are at a four-year high, and employment is forecast to grow 1.9 per cent this year.
Total revenue for 2018-19 is forecast at $49.6 billion.
© 2018 The Canadian Press