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Alberta Cuts Budget Deficit Despite Pipeline Setbacks

A day after a federal appeals court in Canada put the brakes on Kinder Morgan’s troubled pipeline project that would relieve serious pipeline constraints out of oil-rich Alberta, the province lowered its projected budget deficit for 2018-2019 as revenue streams increase on the back of higher oil prices, according to Reuters.

The budget deficit for fiscal 2018-2019, previously estimated to come in at C$8.8 billion, has now been reduced to C$7.8 billion.

While lower than anticipated, the budget deficit is still severe. In July, the province had reported its budget deficit for fiscal year 2017-2018 at C$6.04 billion. That figure was one of the highest deficits in Alberta’s history. The budget deficit for FY 2016-2017 was even more painful at $C10.8 billion.

Today’s rosier fiscal outlook is attributed to the higher oil prices in the last year or so, and comes as particularly welcomed news after yesterday’s ruling that rescinded the approval of the Trans Mountain pipeline largely seen as a huge setback for the country that has the world’s third largest oil reserves.

The prospects for the pipeline are now uncertain. The Canadian government can either go back and consult with its indigenous population—a process that would require a rather lengthy review, or it could appeal to the Supreme Court—a process that is expected to be equally as slow.

Canada’s pipeline troubles are not limited to Kinder Morgan’s Trans Mountain project, with the Keystone XL currently stalled with no progress in sight.

Canada’s heavy oil benchmark, Western Canadian Select (WCS) continues to trade at steep discounts to the United States’ WTI, with the disparity hitting over $30 per barrel—the biggest discount since 2013. A severe shortage of pipeline capacity is mainly to blame for the sharp discount as Canadian production shows no sign of slowing despite its insufficient ability to get it out of the country to market.

By Julianne Geiger for Oilprice.com

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