Alberta, the province that produces most of Canada’s oil, expects its fiscal surplus to shrink 77% as inflation and interest rate hikes crimp economic growth and reduce energy revenue.
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(Bloomberg) — Alberta, the province that produces most of Canada’s oil, expects its fiscal surplus to shrink 77% as inflation and interest rate hikes crimp economic growth and reduce energy revenue.
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The provincial government says natural-resource revenue may plunge by a third in the coming fiscal year, to C$18.4 billion ($13.5 billion), according to documents released Tuesday.
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Holder of the world’s third-largest crude oil reserves, Alberta has experienced an economic boom as the world emerged from the Covid-19 pandemic and oil demand and prices surged, especially after Russia’s invasion of Ukraine. The province also produces more than 4 trillion cubic feet of natural gas in a year.
But growth is expected to moderate this year with central banks raising rates to cool inflation, putting downward pressure on oil and gas prices. As a result, the surplus is expected to be just C$2.4 billion for the fiscal year that begins April 1, down from C$10.4 billion in the current year, according to Finance Minister Travis Toews’ new budget.
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The decline will happen as West Texas Intermediate is expected to average $79 a barrel, $11.50 a barrel less than in the current fiscal year. Alberta’s heavy crude trades at a discount to WTI.
Real gross domestic product is projected to expand by 2.8% this year versus 4.8% in 2022, with unemployment to rise as oil prices stay lower, the government said. Still, the Alberta economy should outpace the rest of Canada, and population will grow at the fastest rate since 2006 — in part because Alberta has significantly lower housing prices than Ontario, Quebec and British Columbia.
Other budget highlights:
- The Alberta Heritage Savings Trust Fund will be allowed to retain 100% of net investment income versus the current requirement it keep only an amount needed for “inflation proofing.”
- Alberta oil production hit a record 3.7 million barrels a day last year and is expected to grow by 100,000 b/d this year
- Most of the decline in resource revenue is from falling oil-sands bitumen royalties. They’re expected to decline to C$12.6 billion in the next fiscal year, from C$18.8 billion
- Non-energy investment will grow 5.6% this year after rising 14% last year
- Net corporate profits may fall nearly 14% to C$101 billion as the economy slows
(Adds oil price in fifth paragraph)
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