Volatility — that was the word of the day at Thursday’s release of the Alberta provincial budget.
Volatility rules the moment because two unrelated troubles, coronavirus and climate change alarmism, have weakened the economics around Alberta oil.
No one knows what’s going to happen with the coronavirus. And no one can say how the illegal blockades across Canada will play out, let alone if climate change radicals will have their way and forever block pipelines like Coastal GasLink or TMX.
What we do know is the price of Alberta oil has been hit hard by a lack of pipelines, and that the fear of coronavirus is now doing the same with the market price of oil, which hit a 12-month low on Thursday, shooting down more than US$15 per barrel from early January.
“I need to talk a little bit about the volatility we’re seeing out there in the marketplace today,” Finance Minister Travis Toews said at the day’s media conference. “It’s significant. Right now it’s quite unpredictable.”
In the face of this turmoil, Jason Kenney’s government put out a steady-as-she-goes budget, one intended to calm the fears of workers, employers and investors alike, while also projecting optimism in the face of the unknown.
“Ultimately we can’t predict where the coronavirus and the economic effects will end,” Toews said of his government. “But what we can do is we can manage the variables that this province can manage. That’s why we continue to believe that it’s vitally important that we create the most competitive business environment to attract investment and ensure that we’re spending responsibly … Those are the two things that we can manage.”
The government’s own projections on Alberta’s economic future are more optimistic than those put out by financial analysts. When asked about this discrepancy, Toews said his government has taken a credible and cautious approach in its projections.
The budget document does indeed include some cautions. For example, it says: “Alberta relies heavily on revenue that is volatile and unpredictable.”
When it comes to the three major pipeline projects, Keystone XL, TMX and Enbridge Line 3, it reports: “Pipeline start dates appear to be on track … However, all three pipelines still face several regulatory hurdles.”
But the budget is also packed full of rosy projections.
It predicts the price of oil will rise to an average of US$58 this coming fiscal year and will shoot up to $63 on average in 2022-23. It predicts we will be exporting almost four million barrels of oil per day by then.
If all three major pipeline projects succeed, western Canada will have ample capacity by 2023, six million barrels per day between pipeline and railways.
Unemployment will drop by two per cent, the government predicts.
Dollars collected from resource revenues will shoot up from $5.4 billion in 2018-19 to $8.5 billion in 2022-23.
In total, government revenues will go from $50 billion in 2018-19 to $58 billion in 2022-23, thus allowing the Kenney government to keep its promise and have a surplus in 2022-23.
Perhaps if it were business as usual for the Canadian oil and gas sector I’d put more weight on such optimistic projections.
But when was the last time a major oil sands project or pipeline went off without a colossal hitch, if it got built at all?
One more note of caution in the budget is that for the happy projections to play out, Alberta does not need all three major pipelines to proceed by 2023, it needs just two of the three.
This caution is well advised. With the lame response from the Trudeau Liberals to the ongoing illegal blockades, why would anyone be optimistic about the fate of any pipeline, especially TMX?
Perhaps Keystone XL and Line 3 will go forward in Trump’s America. Of course, if oil-and-gas critic Bernie Sanders, the Democratic frontrunner, is elected president later this year, we’ll reach peak chaos in the industry across North America.
The budget digs into a scenario where not even one major pipeline gets built. It predicts such a disaster would cost Alberta $2.5 billion in 2022-23 alone.
But Toews said even with blockades and a slow response from law enforcement, he’s more optimistic about new pipelines getting built than he’s been in some time. Recent court decisions have gone in favour of proponents, he said. Companies are also working on plans to get an additional 300,000 barrels per day through existing pipelines. “I’ve been encouraged with that news.”
But then he added: “However, we will not celebrate on additional egress (pipeline capacity) until we actually see oil going through those lines.”
With Alberta’s volatility, that is the most sensible stance of all.