* Western Canada Select oil has fetched $40 under WTI
* No new pipeline capacity expected in near term
* Government departments brace for spending cuts
By Jeffrey Jones
CALGARY, Alberta, Dec 19 Depressed Canadian
crude oil prices have the government of Alberta worried it might
not meet its target of moving back to budget surpluses next
year, the Western Canadian province's finance minister said on
As a result, all government departments will be examining
ways to hold the line on spending in the coming weeks as heavy
oil prices keep lagging expectations, Finance Minister Doug
Horner told reporters.
"We have a situation here that is growing faster than anyone
predicted, in the sense that the market access is causing us to
back up even faster than we thought because of the new
production numbers in the United States, because of the delay in
the United Sates recovery and because they are our one customer
for the majority of our business," Horner told reporters in
In the past month, the price of Western Canadian Select
heavy oil has been $35-$40 a barrel less than that of U.S.
benchmark West Texas Intermediate, a spread not seen for about
five years, due to growing oil sands production and limited
pipeline space to key markets such as the U.S. Midwest.
That put the price of Canadian crude at around $45-$50 a
barrel in some deals for January delivery, compared with $85 and
more for WTI.
No new pipeline capacity is expected in the coming months,
leading analysts and oil traders to predict the pain will
continue for producers.
Alberta, Canada's largest oil producing province, derives
about a third of its revenues from the energy sector in the form
of royalties, taxes and land sales.
Asked if Albertans can still expect a balanced operating
budget for 2013-2014 as the government has targeted, Horner
said: "Today I'm very concerned.
"But what I can control, we're going to be very aggressive
on so we can meet those targets," he said.
Last month, Horner warned that the wide spreads, or
differentials, on heavy oil prices were taking their toll on
finances in the province of 3.8 million people and warned the
deficit for the current fiscal year could be triple the initial
estimate of C$886 million ($897.81 million).
"Every minister is going to have to make some very tough
decisions in their own departments. We've modified their targets
and we'll continue to do that as we see this thing unfold," he
said. "We'll get a much clearer picture of that in the new year.
Very early in the new year we'll get some better numbers."
Horner said he is hopeful that the U.S. government will make
progress in the so-called "fiscal cliff" talks, which aim to
slow the growth of the country's $16 trillion debt, and
kick-start an economic recovery in Alberta's largest energy
He pointed out that the oil price issue was also taking its
toll on Canadian gross domestic product as well.
Alberta is an enthusiastic promoter of new pipelines that
would take its oil sands-derived crude to new markets, including
Texas, Asia and Eastern Canada, developments that are expected
to raise returns for Canadian oil producers. But those projects
are not close to being built.
The U.S. State Department is expected to make a decision
before the end of March on whether to allow construction of
TransCanada Corp's Keystone XL pipeline to the U.S.
Enbridge Inc 's Northern Gateway pipeline to the
Pacific Coast, where the crude could be shipped to Asian
markets, is still the subject of public hearings and regulators
are not expected to rule on it until the end of next year.