Alberta’s reliance on oil revenues means that when prices fall, the economy follows

The budget released Thursday by Premier Danielle Smith's United Conservative government made waves for running major deficits for the next four years.

At the root of those deficits are low global oil prices.

As has been the case for decades, the Alberta government continues to lean heavily on royalties from the oil and gas industry while keeping taxes low.

At $13.2 billion, non-renewable resource revenues for the next fiscal year account for 18 per cent of the government's expected revenues.

That makes it the third-largest source of revenue — after personal income tax ($15.9 billion) and federal transfers ($13.7 billion) but ahead of corporate taxes ($7.3 billion).

The stakes are high for those royalty predictions: Every dollar that oil prices fall below what is forecast in the budget this year will cut around $680 million from the province's total income.

West Texas Intermediate (WTI) prices are currently around $66 US per barrel, which is up slightly since December but way below the $120 US high in 2022.

The government's expectation, according to the budget, is for global oil prices to average $60.50 US per barrel in the 2026-27 fiscal year, rising to $67.50 US per barrel by 2028-29.

To balance the budget, the per barrel price would have to be somewhere in the mid-70s. 

The budget also counts on increases in both oil production and exports, estimating an additional 700,000 barrels per day in pipeline capacity by 2030.

Energy expert Richard Masson didn't take issue with those projections.

"They look reasonable, maybe even a touch conservative," said Masson, former CEO of the Alberta Petroleum Marketing Commission.

He noted that the added capacity in the budget didn't require a new pipeline but was in line with planned expansion of existing Trans Mountain and Enbridge lines.

"Certainly we've had a lot of uncertainty globally recently and energy prices have been down," said Masson.