CALGARY – Despite falling oil demand amid a global coronavirus outbreak, Alberta’s government continues to place high hopes on the province’s energy industry to lead it to a balanced budget in three years.
But Alberta Finance Minister Travis Toews’s austerity budget, unveiled Thursday, also announced it will cut operating expenses two per cent this year and one per cent next year, with deep cuts to the public sector.
Toews, in the first full-year budget introduced by the United Conservative Party since it swept the NDP from power last spring, pushed back against suggestions his oil price forecasts were too high in light of the threat that the outbreak of the coronavirus will hurt global demand for oil.
“I don’t believe we’re relying too much on oil,” Toews told reporters.
The government expects West Texas Intermediate oil prices will average US$58 per barrel over the course of this year. The WTI price has fallen sharply in recent weeks, trading in the US$47 range Thursday, over fears of global slowdown wrought by an economic contraction in China, where cities are under lockdown as the government is trying to contain the coronavirus epidemic.
In a research note Wednesday, Citigroup Global Markets commodities expert Edward Morse said oil was “under renewed selling pressure after the coronavirus contagion spread globally” but he’s still waiting for OPEC’s response to the selloff at a meeting scheduled for next week.
“We can’t predict when the coronavirus and its effects will end,” Toews said, adding the government took a cautious approach to its budget forecasting that has resulted in “more upside potential than downside potential.”
In a province that has suffered tens of thousands of job losses since oil prices collapsed in 2014, the budget attempts to lay out a strategy for adding new jobs in the private sector as it forecasts an uptick in energy investment.
“There is no greater job for our government than getting Alberta back to work,” Toews said as he announced this year’s budget includes a new document called A Blueprint for Jobs.
There is no greater job for our government than getting Alberta back to workTravis Toews, Alberta Finance Minister
The unemployment rate in Alberta continues to hover close to seven per cent. The province expects that rate to fall to 6.7 per cent over the course of the year but Alberta will not return to full employment — that is, the five per cent unemployment rate consistent with a healthy economy — until 2023.
The austerity budget, however, also aims to cut operating expenses two per cent this year and one per cent next year. The cuts will lead to 1,436 full-time equivalent job losses across provincial departments and agencies this year, as the government aims to slash the size of the public sector 7.7 per cent.
Toews called the cuts a “surgical approach” to reducing spending, adding that deeper cuts “would have created a lot of hardships to Albertans that we wanted to avoid.”
With cuts coming to the public sector, hopes are high that projected real GDP growth of 2.5 per cent for 2020 will lead to new private sector jobs.
“The blueprint will support our key sectors of energy, agriculture and forestry, where we’re naturally strong, and leverage our advantages to support sustainable economic diversification, innovation and business attraction in technology and the financial and tourism sectors,” Toews said.
The plan aims to attract $1.4 billion in investment for the growth of agriculture and food exports in four years. “This will create 2,000 jobs and grow the sector by eight per cent per year,” he said.
In addition, the government’s blueprint also sets a target of doubling tourism spending in the province to $20 billion over the next 10 years.
Still, the province’s oil and gas industry will continue to carry the weight of the government’s budget assumptions because growth in non-renewable resource revenues will play an outsize role in helping Toews balance the budget in 2023.
The government is projecting oil and gas investment will increase by $1.5 billion, or five per cent, in 2020. It’s accounting for further annual increases of 8.7 per cent in oil and gas spending between 2021 and 2023.
More important for balancing the province’s budget, Alberta expects eight oilsands projects to reach payout over the next three years – meaning the companies that built those projects have fully paid back the capital spent on construction. As a result, non-renewable resource revenues are projected to rise almost 68 per cent from $5 billion this year to $8.5 billion in 2023.
The Alberta government expects to post a $6.8 billion budget deficit this year and a $2.7 billion deficit next year before recording a $700 million surplus in 2023.
If we don’t achieve more energy egress, additional spending restraint will be necessaryTravis Toews, Alberta Finance Minister
Toews said the government is set on achieving that target but noted further delays to under-construction oil export pipelines could threaten its return to a balanced budget under the current plan.
“If we don’t achieve more energy egress, additional spending restraint will be necessary,” Toews said. His budget assumes that two new oil export pipelines will be built out of the three that are currently advancing, which include TC Energy Corp.’s Keystone XL, Enbridge Inc.’s Line 3 and the federally owned Trans Mountain expansion project.
Late Thursday, TC Energy agreed to temporarily pause construction on the $6.6-billion Coastal GasLink pipeline project through northern British Columbia as federal ministers meet with a group of hereditary Wet’suwet’en chiefs opposed to the development.
Their opposition to that pipeline, and the arrest of protestors along the pipeline route earlier this month, has sparked weeks of rail blockades across the country, disrupting the flow of commodities to export markets.
Many in the Canadian energy industry fear additional protests when construction work begins in the metro Vancouver area for the Trans Mountain pipeline expansion project later this year.
“I don’t believe we’re being overly optimistic,” Toews said.