NDP watching oil prices rise along with Fort McMurray wildfire costs

NDP watching oil prices rise along with Fort McMurray wildfire costs

08 June 2016

published by http://calgaryherald.com 

Canada — The NDP government is feeling hopeful about oil prices that have climbed over US$50 a barrel, but is keeping tight-lipped about the effect of northern Alberta wildfires on the provincial budget.

Oil prices closed the day higher than US$50 for the first time in nearly a year on Tuesday, while Wednesday trading saw the price exceed $51.

Finance Minister Joe Ceci said it’s too early to count on the higher oil price but noted it exceeds the forecasted average of US$42 a barrel for West Texas Intermediate crude.

“It means good things in terms of not being too high in our budget, projecting too high an amount,” Ceci told reporters before speaking at the Global Petroleum Show.

“So we’ll just hope that this is a new floor, that it keeps going up. But as everybody in Alberta knows … as quickly as these things go up they can go down.”

The April provincial budget forecast a record $10.4-billion shortfall based in part on the province’s lowest take in energy revenue in four decades due to low oil prices.

Ceci said it’s too soon to say whether the current higher oil price will fully offset the hit the province’s books have taken from oilsands production being curtailed by mammoth fires that forced the evacuation of Fort McMurray last month.

Production was down by about a million barrels a day in May and a projected 500,000 barrels a day in June, with full production expected to resume in July.

Wildfires forced the evacuation of Cenovus’s Pelican Lake heavy oil facility on Tuesday.

The province has so far refused to put a price tag on the operational costs of fighting the fire or on the damage.

The government only put forward a budget estimate for wildfire management of $86.3 million for 2016-17, along with $200 million for “unallocated disaster and emergency assistance.”

Firefighting costs last year reached $500 million, with situations much smaller in scope than this year’s conflagration.

Ceci said the government is “keeping a firm track on the amount of monies spent” but wouldn’t give an estimate. Some of the expenditures will likely be covered by Ottawa under federal-provincial disaster assistance programs.

“There’s going to be a significant cost. Those numbers aren’t totalled at this point in time,” said Ceci, the MLA for Calgary-Fort.

University of Calgary economist Trevor Tombe said it all adds up to a murky financial picture for Alberta, with complicated royalty formulas adding to uncertainty over the effect of shut-in facilities and no guarantees that higher oil prices will persist.

He noted that even if the current healthier price levels persist for the whole year, the provincial government will still face a shortfall of around $9 billion.

“The deficits are still extremely large,” said Tombe. “We’re going to need a doubling of oil prices roughly from today in order to eliminate that deficit.”

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