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Moody’s cut Alberta’s credit rating to Aa2 from Aa1, citing the province’s reliance on revenues from the oil industry. However, the credit ratings agency upgraded Alberta’s outlook from negative to stable, reflecting the province’s overall fiscal robustness.
Alberta’s reliance on the oil industry was not the only reason for the downgrade, however. In its report, the agency also noted the pipeline capacity shortage that has stumped growth in this key industry. Another reason, Moody’s said, was heightened environmental risks.
"Alberta's oil and gas sector is carbon intensive and Alberta's greenhouse gas emissions are the highest among provinces. Alberta is also susceptible to natural disasters including wildfires and floods which could lead to significant mitigation costs by the province," the report said.
The Finance Minister of the province blamed the downgrade on the previous government.
"This decision shows how previous governments' fiscal mismanagement and inability to gain market access for Alberta's energy continues to affect our province," CBC News quoted an emailed statement by Travis Troews.
"The UCP debt is virtually the same as the NDP, but the difference is the UCP blew a hole in the budget, has no diversification plan, has presided over thousands of job losses with no end in sight," NDP member and former environment minister of Alberta, Shannon Phillips said in response to Troews’ statement.
Moody’s, however, is not as concerned about the diversification of the Alberta economy. The ratings agency said in its report it would revise the province’s rating upwards as soon as it shrinks its fiscal deficit and reduces its debt burden.
“A sustained improvement in the outlook for the energy sector resulting in increased revenue potential for the province could also lead to upward pressure on the rating,” Moody’s also said.
Unfortunately, a change in the outlook for Alberta’s energy industry specifically is unlikely with a federal government that will need the votes of leftist, anti-pipeline parties to push policies forward and other provincial governments that are firmly opposed to new pipelines.
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.