Despite the current oil price situation, Alberta is optimistic for the next fiscal year, expecting its budget deficit to narrow as oil prices improve and disappear by 2022-23, the provincial government said in its 2020-23 budget plan.
According to the document, the Albertan government expects more oil pipelines to come online in the province during this year and next, and oil sands production increases, while the gap between West Texas Intermediate and Canadian crude narrows. Interestingly enough, the government of Canada’s oil heartland expects the average for WTI during fiscal 2020-21 to be $58 a barrel, rising to $63 in fiscal 2021-22.
At the moment, WTI is trading below $50 a barrel, pummeled like Brent crude by the fallout from the coronavirus, or Covid-19, epidemic. The chances of the U.S. benchmark rising by almost $10 per barrel at the moment seem rather slim.
Alberta, however, is optimistic. It expects the budget deficit this year to narrow to US$5.1 billion (C$6.8 billion), down from US$5.58 billion (C$7.5 billion) for the current fiscal year.
The government also expects GDP to pick up this year and grow at a rate of 2.5 percent after remaining largely unchanged in 2019-20. Over the next five years, GPD growth, according to Alberta’s government, will even accelerate to 2.8 percent, with the economy moving “from recovery into expansion”.
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The optimism of the Albertan government deserves respect. The oil industry, which is the province’s main source of revenue, has been plagued by now chronic pipeline shortage problems and low oil prices. To add to this, environmentalist opposition has been growing, earlier this year erupting into railway blockades in protest against the Coastal GasLink pipeline.
Earlier this month, Teck Resources decided to shelve a major oil sands project that would have added 260,000 bpd to Alberta’s oil production. The industry has been complaining about the unfavorable investment climate for years as well, blaming government agencies for making it unfavorable with their regulatory requirements. The current government has clearly stated the oil and gas industry will be its priority, so perhaps the optimism about the next fiscal year is based on planned measures to encourage more investment in oil and gas.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.