Oil delivers big for Alberta's budget, but what does it say about the road ahead for energy?

Alberta's balanced budget is once again supported largely on the back of strong natural resource prices. 

In fact, 2022 was a record-breaking year. 

Non-renewable resource revenue hit an all-time high of $27.5 billion. The projection for the coming year — about $18.4 billion — would be the second-highest year on record.

It's also notoriously volatile. The collapse of oil prices in 2020 meant provincial natural resource revenue was a paltry $2 billion that year. 

At a time when there are questions about the future of the oil and gas industry, a drive toward diversification and federal initiatives to speed up emissions reduction, there's little in Alberta's budget that plots a long-term strategy on those fronts.

What's in the budget

Despite scant details in some areas, there are measures for petrochemical and hydrogen projects, carbon capture and storage, and a desire to rehabilitate old oil well sites. 

Budget 2023 plans for oil prices around $79 US a barrel, dropping to $73.50 US over the next three years. That benchmark West Texas Intermediate (WTI) price has fluctuated anywhere from $71 US a barrel to $82 US a barrel over the past three months. 

About 26 per cent of the province's revenue in 2023 is expected to come from oil and gas contributions. It was 36 per cent last year, per forecasts. The budget is also projecting a drop of $9 billion in natural resource revenues in 2023-24. 

Finance Minister Travis Toews didn't say how Alberta could maintain its planned public services if oil fell below estimated levels.

Emissions reductions, carbon capture and alternative energy has become a big topic nationally and provincially in the last few years.

The budget sets aside $387 million over five years from the TIER industrial carbon tax fund for carbon capture and storage (CCUS) projects. A separate line item pledges an additional $246 million over three years from the Capital Spending Plan for carbon capture facilities.

"This will go toward the Quest and Alberta Carbon Trunk Line projects — which have already stored more than 10 million tonnes of CO2. As well, an additional $2.3 million to support new CCUS business functions in Alberta Energy," said a statement from press secretary Gabrielle Symbalisty.

There are three things Andrew Leach, a professor of economics and law at the University of Alberta, is watching: the upcoming election, federal decisions and industry reaction.  

"How committed is the industry to this? Or are they simply waiting for the government to assure them that no matter what, these projects will have value?"

No 'Rstar'

In this week's budget, no money was set aside for Premier Danielle Smith's much-beleaguered idea to give $100 million in royalty credits to companies to clean up old well sites (something they're already legally obligated to do). 

Toews says that's because RStar (now renamed as a "liability management program") is still just a plan and needs consultations.

But it did get a nod in the document. The environment department is to "address reclamation and remediation responsibilities through effective liability management."

The budget provides a $60.5 million increase for the Orphan Well Association (OWA).

Petrochemicals, hydrogen, carbon capture

Budget 2023 also earmarks $484 million over three years for the Alberta Petrochemical Incentive Program and its grants. The premier has said she's exploring expanding the initiative.

The Hydrogen Centre of Excellence is getting a $5-million grant to encourage technology development. 

The budget nods to ongoing CCUS projects, including the Pathways Alliance and their $16.5 billion facility under development. That project is slated for 2030, but the consortium has warned that timeline is under threat if substantial government investments and tax supports aren't cemented this year. 

Alberta has approved 25 CCUS projects for evaluation and potential development. 

"The other thing we've heard from industry is how long these projects are going to take to get up and running," Leach said. 

"So it's not necessarily even a budget item for the next two or three years."

Smith has also decided to continue funding the Canadian Energy Centre, often referred to as the government's energy "war room." 

Its budget of $12 million this year comes from a larger $27-million budget for "allotted industry advocacy," according to the energy ministry.

Projects and production

Alberta's government also says it's aiming to increase the proportion of global oil the province contributes. In supplementary documents to the budget, it targets 3.7 per cent of global oil consumption by 2024. It was 3.3 per cent in 2021.

The province exported $158.3 billion in energy goods last year, a notable, 59-per-cent increase from the previous year. That number, the government says, is an indicator of the healthy state of the industry. Markets have also been driven by inflation and Russia's war in Ukraine. 

Amid the investment and list of potential projects, Alberta and Ottawa have been feuding over whose responsibility it is to provide subsidies and incentives to industry to spur investment in CCUS and emissions reductions. 

In a recent letter from the premier to Prime Minister Justin Trudeau, Smith offered to work with Ottawa to attract those investments, but only if the feds get Alberta's consent on policies that could affect oil and gas.

The federal government is planning to release legislation that outlines how to transition oil and gas workers into other jobs. It also is planning to impose a cap on emissions, which the province and oil sector have called a de-facto limit to production. 

Revenues from Alberta's industrial emitter carbon tax, called TIER, are expected to fall. Recent changes to it are expected to push companies to take advantage of other emissions reduction credits and options, the budget says. In 2025, it's projected TIER will bring in less than half of what it pulled in 2022 ($637 million versus a forecast of $303 million). 

The province uses the TIER fund to provide support to other emissions reduction projects and pay down the deficit. 

Alberta's budget nods to diversification measures, but details on a longer-term roadmap on energy and environment will likely come later — perhaps after Ottawa fills in its details and private sector projects get closer.