UPDATE 2-Alberta warns of tough budget, sees no tax hike

Mon Jan 21, 2013 6:19pm EST

Related Topics

* Alberta warns of tough provincial budget

* Blames low Canadian oil prices

* Not planning to increase taxes

By Jeffrey Jones

CALGARY, Alberta, Jan 21 (Reuters) - Alberta is more than C$3 billion ($3 billion) short of its target for sales of oil from the oil sands due to deep discounts on the crude, but the shortfall is not pushing the Western Canadian province to raise taxes, tts finance minister said on Monday.

The Progressive Conservative government of Premier Alison Redford is doing what it can to pry open new markets for the heavy oil it depends on for up to three quarters of its nonrenewable resource revenue. However, it does net expect short-term results, Finance Minister Doug Horner said.

That means a March 7 provincial budget "is not going to be a fun budget," and instead will include a series of tough measures to deal with the much lower-than-expected take from the energy sector, Horner told a business audience in Calgary.

Asked by a reporter if a rough estimate of a C$3 billion shortfall in bitumen revenues for the current fiscal year was close to accurate, Horner said: "I think you need to take out a new napkin because it's a little higher than that."

He did not specify how much higher, saying that numbers are still coming in. The government, which derives almost a third of its revenues from energy, will issue a third-quarter update in February that will include a better picture, he said.

In its second-quarter report, the government warned that its deficit for the current fiscal year, ending March 31, could be triple the C$886 million it forecast initially.

"It's not pretty. This differential has widened during period of time where seasonality would normally indicate that we would get a better result. We did not, and that's going to be reflected in our third quarter" Horner said.

He acknowledged the challenge would be to maintain services in such as areas as health care and education as revenues sputter. But he ruled out an increase in taxes.

With its bounty of oil riches - the third-largest reserves in the world - and U.S. benchmark crude above $95 a barrel, Alberta should be raking in money. But extremely tight capacity on pipelines to its main market, the United States, has led to discounts of more than $40 a barrel.

That means Western Canada Select, a widely quoted grade, sells for less than half the price of a barrel of international benchmark Brent. With no major increases in pipeline capacity expected in the coming few months, differentials of that magnitude are expected to persist.

Another issue is booming U.S. oil production, which is creating increasing competition for Canadian crude.

NATIONWIDE PROBLEM

The slump is not just hitting the Alberta economy, but is being felt across the country, Horner said. Many jobs in manufacturing in Ontario, fabrication in Atlantic Canada and professional services in other provinces are dependent on a robust energy sector, he said.

Horner said the government of Alberta sees the problem as a structural one that requires a series of responses aimed at opening up new markets for the supplies. This includes promotion of a national energy strategy, supporting efforts to get oil to Asian markets and processing crude within the province of 3.8 million people.

Alberta has been a big supporter of such contentious projects as TransCanada Corp's Keystone XL pipeline to Texas and Enbridge Inc's Northern Gateway line to the Pacific Coast, though neither has regulatory approval yet.

Besides proposals to move crude to the British Columbia Coast to gain exposure to higher Asian oil prices, the government is examining such plans as reversing one pipeline and repurposing another to get the crude to Quebec and points East as well as a railway to Alaska.

"We're not saying no to anything right now," Horner said.

Despite the oil price woes, the government is not yet ruling out its previous target to balance the budget in the upcoming fiscal year.

"Is it going to be really, really tough to do? Absolutely, and the longer this situation persists the harder that's going to be."

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