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Budget 2023: Industry leaders say 2023 may be pivotal for oil industry

Finance Minister Travis Toews said Albertans have been absolutely blessed over the last year and half with a strong recovery and high energy prices in response to a big surplus and a record non-renewable resource revenue forecast. On Feb.
Oil refinery plant of petroleum or petrochemical industry production at sunset

Finance Minister Travis Toews said Albertans have been absolutely blessed over the last year and half with a strong recovery and high energy prices in response to a big surplus and a record non-renewable resource revenue forecast.

On Feb. 28, the United Conservative Party released the provincial budget which included a forecast of a “record” $27.5 billion in non-renewable resource revenue for this year and a “second highest amount recorded” forecast of $18.4 billion for the 2023-24 fiscal year.

The revenue forecast is based on the ease of global issues that caused the decline in 2020 and the increase in energy prices as pandemic restrictions eased and the unexpected high prices due to the invasion by Russian forces of Ukraine in 2022, budget documents state.

The provincial revenue total is estimated at $70.7 billion in 2023-24 $5.4 billion lower the record forecast for 2022-23. Spending is forecast at $68.3 billion which would give the province a $2.4 billion surplus with taxpayer-supported debt expected to fall to $78.3 billion.

“The year 2023 may be one of the most pivotal moments in time for Canada’s oil and natural gas industry,” said Lisa Baiton president and CEO of the Canadian Association of Petroleum Producers (CAPP) in a statement.

“With an emerging liquefied natural gas export industry, the expected completion of the Trans Mountain pipeline expansion, and billions of dollars in emissions reduction investments waiting to be unlocked, Canada is positioned to play a much larger role in providing responsibly produced energy resources to the world,” she continued.

Richard Masson an executive fellow and oil expert from the University of Calgary School of Public Policy said what he thinks is important for people to see in the budget is royalties from the resource sector.

“If you look at bitumen royalties, it's gone $11 billion of bitumen royalties in 2022. And is forecast to pan and jump to $19 (billion) almost this year, that's huge. It's still forecast to be 12 million or so for the next couple years. Even at $76 oil prices,” Masson said.

Masson said Alberta is benefiting from investments that happened from projects 15 years ago and have now come to maturity.

“The royalty rate is higher, prices are higher, the world needs the oil, and Alberta is really benefiting from it,” said Masson.

In a press conference Toews said the oil and gas sector continues to play a vital role in driving Alberta’s economy and 2022 produced a foundation for an increase in drilling, production, and investment.

Baiton agreed.

“We will continue to engage on creating the right conditions for investment to attract future projects and associated business and job opportunities, as well leading clean technology developments and innovations,” she said.

CAPP is projecting $28 billion in upstream oil and natural gas investments for 2023 in Alberta which represents 70 per cent of national investments. Canada wide investments are projected at $40 billion.

“Reaching pre-Covid levels of investment is a significant milestone,” she said.

Masson said the best year Canada had for oil investment was $80 billion in 2014 according to the ARC Energy Research Institute, and investment dropped to $20 billion in Canada during the COVID-19 pandemic.

“It's rebounding. But it's very slow rebounding,” he said.

The province is expecting oil and gas producers to continue to increase spending in the province.

“Drilling activity in the province ramped up to an eight-year high last year in response to elevated energy prices and strong demand,” budget documents state.

In 2022, investment in conventional oil and gas extraction sector is forecast to rise to an estimated $14.3 billion or an increase of more than 36 per cent. Conventional investment is forecast to grow by $2.7 billion in 2023 and the “moderating to an average of about seven per cent (growth) in the next three years.”

Investment in oil sands is also expected to rise this year due to rising bitumen production and moderate growth in costs, according to the budget. Non-conventional investment ballooned by an estimated 31 per cent in 202 and is forecast to grow by “17 per cent or $2.7 billion in 2023 before rising at an average of about 9 per cent over the medium term.”

The province is expecting a boost of 590,000 barrels per day (bpd) in takeway capacity after the Trans Mountain Expansion (TMX) is completed later this year.

Masson said TMX is a short-term fix to getting Alberta oil out of the province.

“Canada is the fourth largest oil and gas producer in the world…and since we're trying to get off Russian oil…Russia provides three million barrels a day to the world out of its 12 million barrels a day of production,” he said.

To get off Russian oil, Masson continued, someone would have to step up and provide three-million bpd to the world.

“Right now, Alberta and Canada are not well positioned to do that. We don’t have the investment coming at the level we need. We don't have the pipelines to take it to market,” he said.

According to the budget, Albert reached an all-time high of 3.7 million barrels per day in 2022, and oil production is forecast to grow 100,000 bpd for 2023 and 220,000 bpd between 2023 and 2026. Provincial forecasts show production could reach almost 4.1 million bpd by the end of the forecast period.

The budget assumes the West Texas Intermediate (WTI) to be $79.00 per barrel for the 2023-2024 year. This is down from the assumed $90.50 per barrel forecast for 2022-23 year and nearly double the 2020-2021 actual price of 42.32 per barrel.

The WTI is predicted to fall the following two years to $76.00 for the 2024-25 fiscal year and to $73.5 for 2025-26.

There is still a lot of uncertainty when it comes to the oil market as global issues including sanctions on Russia, COVID-19 in China, and fears of global recession continue to impact the price of oil.

In response to a reporter’s question about Alberta’s reliance on oil revenues Toews acknowledged the volatility of Alberta’s revenue structure.

“Alberta's revenue structure does remain volatile. We do depend at this point, certainly to a significant degree on non-renewable resource revenues. And that's our reality right now,” he said.

Toews said it will be important for Alberta to look at its revenue structure in the future, once the government gets its spending in line.

“There's a time when that will be important and that time will probably be in the not-too-distant future,” he said.

Jessica Nelson, Local Journalism Initiative Reporter, St. Albert Gazette