When the Kenney government brought down its 2022-2023 budget on February 24 of this year, it was already out of date. This luckiest of provinces can’t keep up with the price of oil.
Alberta’s mid-year fiscal update for ‘21-’22 had already reported a phenomenal revenue turnaround. A $17 billion deficit in ’20-’21 shrank to a projected deficit of slightly more than $3 billion in ’21-’22. This year’s budget now projects a small surplus of $500 million. But that surplus is based on a predicted average price for oil of $70US a barrel . The actual price has been $20 to $30 above that pretty much ever since.
The rule of thumb is that Alberta’s royalty revenues increase by $500 million for every $1 a barrel increase in the price of oil. Do the math. The province will reap additional, unpredicted billions, perhaps tens of billions (RBC says as much as $14 billion), before the year is over. Remember that when you hear Albertans whine about getting screwed by Ottawa.
Oil revenues are notoriously volatile, so nothing is written in stone. But bear in mind that much of that new revenue (60% plus) is coming from expanding tar sands production (experts predict record highs, up by more than 180 thousand barrels a day this year). What’s more, higher royalty rates apply to an increasing share of that production (considered “post-payout”). Those facts suggest the good news for the province’s treasury will continue as long as demand lasts.
Former Premier Peter Lougheed’s Heritage Trust Fund was intended to help hedge against the day when the oil ran out (climate change was a concern of only a few prescient scientists at the time). Ideally, the Fund would support investment to diversify the economy away from its dependence on non-renewable resources. Unfortunately, decades of unimaginative, short-sighted Conservative governments have left the Fund barely larger than it was in Lougheed’s day in the 1970s.
Jason Kenney is equally remarkable for a lack of vision. The coming provincial election should be a debate over how the current multi-billion dollar windfall will be allocated. Yet, there is precious little indication so far of public engagement in the issue. One hopes this will not be just another case of the Conservatives returning to their favourite game plan – buying off uncritical Albertans with their childrens’ inheritance.
Correction – An earlier version of this post mistakenly said oil sands production is expected to increase by 180 million b/d, when the right number is, of course, 180 thousand b/d. Total production is expected to rise to as high as 3.3 million b/d for 2022. The conclusions still hold.