Sinking world oil prices are no cause for Alberta to panic, but there are reasons for concern about a glut of North American crude and a slowdown in oilsands development, Premier Jim Prentice said Wednesday.
The benchmark price of West Texas Intermediate hit a 17-month low this week before rebounding Wednesday, while the price for North Sea Brent oil dived to its lowest level in two years before climbing.
Speaking in Calgary, Prentice told reporters the government is watching the price fluctuation, but itâ€™s not at a point where it will significantly affect the provinceâ€™s budget outlook.
â€œGoing forward over the next several years, the prices that we have budgeted, we are within tolerance,â€� he said at McDougall Centre.
â€œClearly, there has been some slippage in the international price of oil, but this is not entirely unexpected.â€�
Prentice, sworn in as premier just over two weeks ago, has preached the need for the Tory government to be more fiscally conservative, but has also pledged to spend money to build needed public infrastructure such as schools and roads.
The spring provincial budget was based on a WTI price of $95.22 US a barrel, while prices hit a low of $91.22 this week.
Prentice said that while overall world prices have dipped, Alberta has been benefiting from the â€œreasonably modestâ€� price differential between oilsands crude and lighter grades of oil.
A differential around $40 a barrel â€” what former premier Alison Redford dubbed the â€œbitumen bubbleâ€� â€” was blamed by the Tories for derailing the provinceâ€™s fiscal outlook in 2012-13 and led to a belt-tightening budget the next year.
In contrast, the current gap between WTI and Western Canadian Select, a benchmark heavy oil price in Alberta, sits at around $13.50 a barrel.
But Prentice cautioned that the province continues to be hampered by a reliance on the United States as its sole customer and the lack of access to other markets, especially Asia, because of hurdles to proposed pipeline projects.
Growing U.S. oil production is a concern for Alberta, said Prentice, a former federal industry minister and bank official.
â€œWe are heading into a circumstance where the North American market is oversupplied and we are a costly producer in that environment. We have a valuable commodity thatâ€™s important, but we have to access another customer,â€� he said.
Lack of market access is also affecting oilsands investment, Prentice acknowledged.
He said Statoil Saâ€™s recent decision to put a 44,000-barrel-a-day expansion project on hold should not be seen as part of a larger trend.
But a continued inability to achieve full global prices for Alberta energy products â€œwill begin to have a negative effect on investment in our province,â€� the premier added.
Wildrose MLA Rob Anderson said current price levels are only a concern because the Progressive Conservative government continues to roll up debt even with buoyant provincial revenues.
â€œIf things go south a little bit, weâ€™re so leveraged right now it will be difficult to balance the budget for a while,â€� said the Opposition finance critic. â€œTheyâ€™ve got to throttle back the waste.â€�
Anderson said the lack of market access is a major issue affecting oilsands development, but the provinceâ€™s regulatory environment and uncertainty over government policies are also factors that need to be addressed.