Sask. needs better budgeting to deal with oil
It is not unreasonable for Premier Scott Moe to complain we are getting hosed on the differential in western Canadian oil prices. What is unreasonable is for political leaders to think it’s sufficient to simply gripe about problems they can’t control while doing precious little to change their dependence on unpredictable oil to balance their budgets.
Yes, the provincial budget would be doing better with fairer oil prices, but Moe needs to do more than tweet about how hard done by we are because of the quirks of oil pricing. After all, it’s not exactly the first time we’ve been hammered by oil prices.
Really, this Saskatchewan Party government has actually fared far better with oil than past provincial governments. Since West Texas Intermediate (WTI) peaked in 2008-09 at US$160 a barrel, Saskatchewan’s resourcebased economy suffered a deep and immediate decline to $50 a barrel, a rally to past $120 a barrel, another deep decline to below $40 a barrel and rally to around $70 a barrel.
Sure, this oil-price uncertainty — all occurring during the Sask. Party government’s 11-year tenure — has not always been easy for government finance ministers. However, oil prices as high as $160 a barrel have made life easier for Sask. Party finance ministers than their predecessors.
During the 1990s and early 2000s, the then-NDP government’s fight against the massive debt it inherited from the Progressive Conservatives was surely hampered by oil below $50 that dipped to below $20 a barrel.
Really, the problem here is a government that became reliant on high oil royalties early in this term and hasn’t adjusted its spending habits.
That said, what Moe and his government are now dealing with is a new version of the age-old problem. That current version of the problem is admittedly due to the inherent unfairness of western Canadian oil now being sold at record discounts while American refineries are making huge profits.
Interestingly, comparatively low crude oil WTI prices aren’t lowering gas prices now hovering between $1.10 and a $1.20 a litre. It all has to do with limitations on production as U.S. refineries go through maintenance issues and limited export pipeline capacity — the latter being an issue that Moe has rightly complained about.
The problem is the solution is not exactly within the purview of a Saskatchewan premier.
The bottom line is that this has created a massive US$52.40-a-barrel difference between Western Canada Select (WCS, which dropped below $20 a barrel last week) and WTI. Analysts said it won’t begin to be rectified for at least another month until those U.S. refineries are back online.
For the Saskatchewan government, the effect could last even longer. It is describing the price differential discount for oil as something that’s “unfortunate” and “worrying ” — a $500-million hit to provincial coffers in the 2018-19 budget as a result of reduced royalties.
“That’s money for hospitals, and roads and social services. That’s people and jobs, investment. That’s why this is so real and so worrying,” said Energy Minister Bronwyn Eyre.
The NDP Opposition takes some umbrage at how much this may affect the 2018-19 Saskatchewan budget, noting that light crude makes up 53 per cent of Saskatchewan’s oil production, with heavy crude accounting for 33 per cent and light-heavy mix crude accounting for 12 per cent.
Given that the Canadian dollar is also being factored in, Eyre’s figures are likely not all that outrageous. However, the real issue in play is the need for better Sask. Party government budgeting.
While former premier Brad Wall paid lip service to moving away from the dependency on oil revenues in budgeting, he is responsible for massive operational expenses like 36-per-cent wage increases for nurses during high oilprice years. Moreover, his government carried on massive capital spending that has vaulted Saskatchewan public debt to record levels.
This has to change. If the current oil pricing problem tells us anything, it’s that quirky oil can’t be the basis of our budgeting.