NDP plan leans heavily on energy for growth
Trans Mountain, Enbridge pipelines expected to lead to $10B in funds by 2022
While Alberta’s oil and gas industry limps away from a blistering two-year rout, the NDP government will rely heavily on energy to bolster economic growth and tax revenues in the coming years.
The province estimates two big pipeline projects — Kinder Morgan’s Trans Mountain expansion and Enbridge’s Line 3 replacement — will increase the value of Alberta bitumen, leading to an additional $10 billion in new oilsands spending by 2022.
The projects are expected to hike oilsands production capacity by 150,000 barrels per day within the same five-year period, delivering a significant economic boost amounting to a 1.5 per cent addition to Alberta’s GDP, according to budget forecasts.
The Notley government argues its climate-change agenda, including an economywide carbon tax, was necessary to secure approvals for new pipelines.
Budget forecasts show just how much the province believes is at stake. An additional $3 billion to $9 billion in royalty payments are expected to flow to government coffers from higher commodity prices and production linked to Trans Mountain and Line 3 between 2017 and 2022.
Keystone XL, still awaiting regulatory approval, would bring additional benefits.
“I’m not building a budget on pipelines,” Finance Minister Joe Ceci told reporters, adding projected revenues are also fuelled by non-renewable resources, such as oil and gas, along with corporate and personal income taxes.
But there are risks that the budget may not meet expectations.
Alberta’s economic outlook could deteriorate if global oil production surges after promised cuts, pushing prices lower and potentially expanding the provincial budget hole, with a $10.3-billion deficit already forecast for 2017-18.
If pipeline projects are delayed or cancelled, producers will continue to be saddled with higher costs of transporting crude to customers, weighing on profits and investment sentiment. Billions in royalties are also at stake.
“If the royalty revenue forecasts are off, and they very likely could be, dependent as they are on things like on-time completion of Trans Mountain and Line 3 ... then sometime in the not-too-distant future some really tough decisions will have to be made,” said Martha Hall Findlay, chief executive of the Canada West Foundation.
Without new pipelines, the government estimates there will not be enough capacity to handle increased oilsands production by early 2018. The shortfall will force operators to ship more crude by rail, an expensive alternative that will hike their costs by US$2 to $7 per barrel, the forecasts show.
A recent report by Morgan Stanley suggests Canadian oil production will outstrip pipeline capacity later this year, sooner than the province expects.
Following a punishing two-year downturn, the government is banking on oil and gas to help fuel the recovery. It expects exports — especially oilsands exports — will drive the economic rebound.
More than 600,000 barrels per day of new oilsands production, including output from Suncor Energy Inc.’s Fort Hills project and Canadian Natural Resources Ltd.’s Horizon expansion, is expected to boost oil exports by 16 per cent in the next two years.
The government believes Alberta’s economy will grow by 2.6 per cent in 2017, which it contends will lead to “renewed employment and earnings growth.”
Still, the jobs recovery will be muted. After the economy shed 62,000 jobs from September 2015 to July 2016, Alberta’s workforce is expected to grow by less than one per cent this year, followed by a 1.4 per cent gain in 2018.
While more jobs will become available this year, more Albertans are expected to be seeking work, keeping the jobless rate elevated at eight per cent, according to the forecasts.
At the centre of many budget estimates is the price of oil, with the government predicting West Texas Intermediate — a key benchmark — to hover around US$55 per barrel this year before gradually rising to US$68 in 2019-20.
The estimates, based on an average of independent forecasts, assumes global supply and demand of oil will come into balance later this year.