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Alberta to Cut Services as Low Oil Price Takes C$6B From Budget

Alberta, home to Canada’s oil and gas industry, will collect C$6 billion (US$5.98 billion) less revenue in 2013 as a result of the low price of Canadian heavy oil, Premier Alison Redford said.

Alberta will have to hold the line on spending, and some public programs and services “will change, especially those that are not sustainable over the long term,” Redford said in a televised address.

Alberta relies on royalties and taxation of the oil and natural gas industry for 30 percent of its revenue. A 35 percent drop over the past four months for the price of Western Canada Select, the benchmark Canadian crude that averaged $71.80 last year, has widened the gap relative to world oil prices and forced Redford’s government to find ways to make up for the shortfall.

“Because of rapidly growing levels of oil production in the United States, and the fact that we have virtually nowhere else to sell our oil but to the U.S. market, Alberta is getting just over $50 a barrel for our oil,” Redford said.

The falling price of Alberta heavy oil “is getting worse for the foreseeable future,” and the falling prices last year meant Alberta collected C$1 billion less resource revenue than it expected, she said.

Redford didn’t elaborate on specific spending cuts or others details of the provincial budget, which will be made public March 7. She said the C$6 billion estimate of lost revenue is equal to Alberta’s annual spending on education.

Alberta needs to find new markets for its oil overseas in order to avoid being so susceptible to swings in prices, she said.

Heritage Fund

Redford also said her government has a plan to invest more resource revenue in the Heritage Fund, a provincial wealth fund, for the first time in more than 25 years.

Alberta’s 2013-2014 budget “is not going to be fun” and the province needs “to make corrections to our spending,” provincial Finance Minister Doug Horner told the Calgary Chamber of Commerce on Jan. 21.

Alberta will probably borrow more this year, taking advantage of the province’s AAA rating and low interest rates, Horner said in a Jan. 18 interview. The province will also tap its sustainability fund to help offset lower revenue from the world’s cheapest oil, he said.

To contact the reporter on this story: Edward Welsch in Calgary at ewelsch1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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