Surging Oil, Gas Prices Spell Big Alberta Surplus

www.morningstar.ca 26 Feb 03(1:01 PM) | E-mail Article to a Friend

EDMONTON, Alberta (Reuters) - Skyrocketing oil and gas prices prompted energy-rich Alberta on Wednesday to more than double its projected budget surplus to a hefty C$1.8 billion ($1.2 billion) as oil industry revenues pile up.

The western Canadian province's government also boosted its outlook for commodity prices in the current fiscal year, a day after Premier Ralph Klein ruled out immediate rebates to help Albertans cope with surging heating bills.

The forecast surplus for 2002-03, as detailed in the government's third-quarter report on Wednesday, is up from C$724 million in the budget last March and C$199 million in the previous quarterly update.

As Canada's biggest energy producer and exporter, as much as a third of revenue in the province of 3 million people is derived from the oil and gas sector.

World oil prices have simmered near two-year highs in recent months because of fears of a supply disruption should there be a war in Iraq. Adding to jitters, a protracted strike in Venezuela has also cut oil exports from the major producer.

This week, natural gas surged to levels not seen in 25 months due to cold weather in key North American consuming regions as markets fretted over dwindling inventories.

Alberta Finance Minister Pat Nelson said her Conservative government increased its oil price forecast to $28.86 a barrel, up 44 percent from the outlook in the budget.

Natural gas at the Alberta wellhead was now expected to average C$4.65 per thousand cubic feet, up 55 percent.

Total revenues were projected at C$22.6 billion, up from the budget forecast of C$19.9 billion, due to the increased take from the oil industry. Expenses are pegged at C$20.7 billion, up from C$19 billion.

Of the surplus, which the Klein government calls an "economic cushion," C$900 million will go to a new capital account to be used to bolster infrastructure such as new schools and hospitals, something it has been accused of under-funding.

Another C$500 million is earmarked for debt reduction, while the remainder will go to a new "sustainability fund" for unforeseen expenses such as fighting forest fires and dealing with other natural disasters. Alberta wants to set aside C$2.5 billion in that account eventually.

On Tuesday, Klein ruled out consumer rebates to deal with high natural gas prices, despite a chorus of calls from cities and municipalities. He said rebates, which Albertans received during the last gas price spike two years ago, are not meant to deal with short term price increases.

($1=$1.49 Canadian)