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2017 may be a "year of turnaround" for Alberta, assuming the energy patch picks up the slack

2017 may be a "year of turnaround" for Alberta, assuming the energy patch picks up the slack

Alberta Finance Minister Joe Ceci tabled the government's 2017/18 budget and fiscal outlook to 2020.

The province expects to run a deficit of $10.3 billion this fiscal year, which runs from March 31, 2017 to March 31, 2018, down from an earlier forecast of $10.8 billion. The deficit will shrink to $9.7 billion next fiscal year, then $7.2 billion in 2019/20.

The government says they have a "path to balance" and expects to eliminate its deficit by 2023/24. Debt-to-GDP has doubled from 2015 and it expected to rise to 19% the next fiscal year, higher than the debt ratios of BC and Saskatchewan.

2015/16 DEBT-TO-GDP: INTERPROVINCIAL COMPARISON
(GRAPHIC COURTESY THE ALBERTA GOVERNMENT)

Ceci says 2017 is going to be a "year of turnaround," adding that "Alberta's economy is stabilizing and jobs are returning to the province." This year's GDP growth forecast is 2.6% on expectations of higher oil prices, increases in bitumen production, higher corporate taxes and revenues from the new carbon levy fund.

The government is planning record capital spending this next fiscal year, blamed on bad weather, the Fort McMurray wildfires and deferred investments from previous governments.

The budget assumes an average oil price of US$55 a barrel in 2017/18, up from an average price of US$48 in 2016/17. Average oil prices are expected to rise to US$59 the next fiscal year and US$68 in 2019/20.

However, the government has added a risk adjustment "buffer" of $500 million this year in case those oil price forecasts don't pan out. The risk adjustment rises to $700 million next year and $1 billion in 2019/20. 

ATB recently released a more conservative forecast of US$55 WTI this year, rising to an average of US$60 next year. Minister Ceci says his government takes an average of several third-party forecasts.

The province will cap electricity prices over the next 4 years to 6.8¢/kWh presumably to avoid the fiasco the Ontario government faced when the province's coal power plants were shutdown. An additional $566 million in funding will be provided for small scale renewables and energy saving program through the Energy Efficiency Alberta program.

For all the talk of diversifying the economy away from oil revenues, the government's "path to balance" hinges on higher output from the oil sands and better oil prices. Bitumen production is expected to rise by 400,000 bbl/day over the next 12 months and another 400,000 bbl/day by 2020. The government warns most of that increased production will be forced onto railcars until new pipelines are completed, which is likely to widen the heavy oil discount in the short term.

ENERGY AND ECONOMIC ASSUMPTIONS
(GRAPHIC COURTESY THE ALBERTA GOVERNMENT)

SOURCES:
GOV'T OF ALBERTA • BUDGET 2017: FISCAL PLAN FOR 2017-2020
GOV'T OF ALBERTA • FISCAL PLAN: ECONOMIC OUTLOOK
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