Alberta rides fiscal wave
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Province rebounds from economic depths; resource revenues forecast to rise almost 4-fold; production climbs 5.7%, exports up 4%
Gary Park for Petroleum News
The Alberta government has turned its fiscal clock back at least seven years. But for how long is an open question.
Based on a lively first quarter, pointing to economic growth of 6.7% for the current budget year, accompanied by an increase in overall employment of 5.2%, the province has been able to stage a preliminary revival from the pit of pandemic woes.
Not surprisingly, this startling update has overhauled a tepid forecast laid out six months ago and is based as it has been for almost 70 years on robust oil and natural gas revenues.
The new numbers, released by Finance Minister Travis Toews, show returns from non-renewable resources could reach C$10 billion in the 2021-22 fiscal year, compared with the C$2.9 billion forecast in a February budget.
Toews said the deficit is still on track for C$7.8 billion compared with the original target of C$18.2 billion.
He summarized the outlook in a few words: “Economic growth is exceeding our expectations. Global demand for oil has outstripped supply, meaning oil prices are stronger than expected.”
The budget details had been preceded a month ago by news that oil output in Alberta had surged past its 2019 peak before the pandemic disruption and collapse of energy prices.
ATB Economics said production averaged 3.53 million barrels per day in the first half of 2021, up 5.7% from the same period of 2020 and 1.8% better than the same period in 2019.
The vast majority - 86% - was attributed to oil sands extraction.
“On the oil sands side, we’re seeing facilities that have been potentially underutilized over the last two and a half years run up on production capacity,” said Kevin Birn, vice president of Canadian crude oil markets for the research and analysis firm IHS Markit.
ATB Economics said the upswing is the continuation of a long-term trend, with volumes now 86.2% above where they were in 2010.
Exports up The amount of oil being exported from Alberta to other provinces and other countries (dominated by the United States) is also climbing fast, up 4% in this year’s first half and 1.7% higher than in 2019.
The dollar value of exports for the six months was up C$9.7 billion, 36.8% above the first half of 2020, ATB Economics said.
However, Alberta is not yet ready for a celebration.
Overall revenue forecasts for the current fiscal year are C$55 billion, C$11 billion more than predicted, but expenses are pegged at C$62.7 billion, more than expected because of crop insurance payouts caused by an extreme drought this summer. Total taxpayer-supported debt is projected to reach C$106 billion by March 2022, with debt interest payments pegged at C$2.6 billion a year.
“Since we’re on the positive side of the roller-coaster, but still facing a huge upswing in the provincial deficit, this (turnaround) couldn’t have come at a better time,” said Mike Holden, chief economist at the Business Council of Alberta.
University of Calgary economist Trevor Tombe said Alberta has “been firmly on the revenue roller-coaster for as long as any of us remember. We can’t forget that an unexpected decline at some point may still happen.”
Along with the latest numbers, the government has set average commodity prices of US$65.50 a barrel for crude.
“We’re not expecting to fully recover until 2022,” said Toews, taking a familiar line used by finance ministers. “We know the next days, weeks and even months will be bumpy from an economic standpoint.”
With that thought in mind, a new survey of business owners and the public by the Alberta Chamber of Commerce found that “diversifying the economy beyond oil and gas” is the top priority for 32% of respondents.
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