Rich resource revenue ride may be ending
The party might be ending.
The surge in resource prices that bestowed a windfall of so much unexpected resource revenue money on our province that even the Saskatchewan Party managed to balance the budget shows signs of declining.
The price of potash, the main driver of the sudden Saskatchewan surplus, has been dropping since November.
Last week, the chief executive of Saskatoon-based Nutrien Ltd., Ken Seitz, indicated the company is reconsidering its plans to ramp up potash production after disappointing first-quarter results due to dropping prices and reduced sales.
The price of potash experienced an unprecedented jump after Russia's invasion of Ukraine early last year. That hike has resulted in lower sales as farmers delay the purchase of fertilizer.
That trend could doom plans to expand production at Nutrien's six Saskatchewan mines and hire hundreds.
A continued decline in price could also affect the resource revenues collected by Saskatchewan that have provided the provincial government the option to pay down $2 billion in debt and deliver its first balanced budget in eight years.
The Russian invasion of Ukraine sent potash prices soaring from US$221 in January 2022 to US$564.5 in March 2022. After remaining at that price for most of the year, potash tumbled for the past few months to US$453.
That price remains well above the US$369 estimate used to establish figures for the 2023-24 Saskatchewan budget, for which the province is counting on $1.4 billion in potash revenues. But the gap is getting close enough that one might wonder how low it will go, especially given the signals from the potash industry.
Production levels will also affect government revenues.
The budget is also counting on $963.1 million from oil based on the price for
West Texas Intermediate of US$79.50 per barrel. That seems a shakier bet, given that oil prices have been on a decline for nearly a year since peaking at nearly US$120 per barrel in the wake of the Russian invasion.
Oil prices have dropped below the budget threshold for nearly a month, although forecasts suggest they will start to rise this year.
This all translates into exactly what Saskatchewan Finance Minister Donna Harpauer has repeatedly said about using resource money to fund the operating budget — that you cannot continue to count on that cash.
Saskatchewan experienced tremendous economic fortune last year because a Russian tyrant invaded a European country. Even with the tragic war still ongoing, global markets have adjusted to the new reality.
But it makes Harpauer's musing about reducing the provincial sales tax last week puzzling — at least from an economic perspective.
Politically, however, one can see the reasoning from a government facing an election next year and willing to mostly ignore all the calls for more immediate relief from consumers and for increased spending on health and education.
The Saskatchewan Party will hope voters can forget the expansion of the six per cent PST under its watch.
Yet you must wonder about a government that already tried a similar vote-buying tactic by announcing $500 cheques just before calling last fall's Saskatoon Meewasin byelection, after shrugging at rising inflation over the summer while other provinces offered relief.
The governing party lost that byelection soundly to the NDP Opposition, so we should probably lower expectations for $1,500 cheques with three byelections now looming.
Plus the resource boom did nothing to dampen economic pessimism in Saskatchewan, if you believe a March survey of online panellists by Angus Reid, which showed the province leading the nation with the grimmest financial outlook.
That appears to run counter to the reality in Saskatchewan, which experienced a surge in economic growth last year after three years of decline that coincided with Premier Scott Moe assuming the top job.
Moe and his government work hard to try to change the perception of economic decline, but the end of the resource boom would make that more challenging.