New programs to promote diversification in Alberta’s energy sector

Lloyd Lewis

Published

6 years ago

5 minute read

Moving towards a more diversified energy sector

June 11, 2018 Media inquiries
New jobs and more private investment will be just some of the benefits of a more diversified energy sector, thanks to three new incentive programs created through the Energy Diversification Act.

The legislation, passed June 6, includes three new programs that provide a combination of royalty credits, grants and loan guarantees designed to encourage energy diversification, like petrochemicals and partial upgrading.

“Supporting energy diversification means supporting good jobs for working families and Albertans. We’re acting to ensure Alberta is competitive for major private investments and to build an economy to last. This is an exciting moment to push Alberta’s energy sector forward.”

Margaret McCuaig-Boyd, Minister of Energy
In total the $2-billion investment is available for private industry to apply for under:

Round 2 of the Petrochemicals Diversification Program
The Petrochemicals Feedstock Infrastructure Program
The Partial Upgrading Program
Industry can submit applications for the Partial Upgrading Program until Sept. 4, and can submit applications to the Petrochemicals Diversification Program and Petrochemicals Feedstock Infrastructure Program until Oct. 1. Evaluation will begin once the application seasons close. A decision on successful applicants is scheduled for late 2018.

The three programs are estimated to attract more than $10 billion in private investment, support roughly 8,000 construction jobs and create hundreds more operational jobs.

Petrochemicals

Petrochemicals are Alberta’s largest manufacturing industry, supporting roughly 7,600 skilled jobs and $8.2 billion in exports every year.

Round 2 of the Petrochemicals Diversification Program will build on the success of the first round and expand its scope. Applications will now be accepted that involve the use of ethane (used to manufacture products like plastic), as well as methane (used primarily as fuel, and to manufacture chemicals like ammonia) and propane (for heat and fuel). These are petrochemical feedstocks derived from natural gas. Applications to increase production at existing facilities will now also be allowed, after being excluded in the first round of the program.

The first round of this program in 2016 led directly to Inter Pipeline’s final investment decision on its $3.5-billion propane-to-polypropylene complex which is under construction in the Industrial Heartland near Fort Saskatchewan. At the peak of construction, an estimated 2,300 direct full-time jobs will be created and, once complete, the facilities will employ 180 people. A second proposed project from Canada Kuwait Petrochemical Corporation is undergoing front-end engineering design work for its project. A final investment decision is expected by early 2019.

Feedstock development

In order to ensure Alberta continues to have a strong supply of the building blocks needed for petrochemicals manufacturing, the Petrochemical Feedstock Infrastructure Program was created.

It will encourage industry to move forward on the facilities and infrastructure needed to capture more natural gas liquids required for value-added development.

These developments could include new natural gas processing facilities, smaller projects built closer to wellheads or straddle plants, facilities that are built along major natural gas pipelines that can extract certain components during transportation.

Partial Upgrading

Partial upgrading is a process that reduces the thickness of oil sands bitumen so it can flow through pipelines more easily, without having to be blended with diluent (a thinning agent such as naphtha). This process increases the volume of the bitumen product as well increasing its value.

Partial upgrading would enhance oil sands industry competitiveness by reducing industry costs, increasing pipeline capacity and enabling more refineries to process Alberta bitumen products. It would not limit future opportunities for full refining within Alberta.

The Partial Upgrading Program will support projects to develop this emerging technology in Alberta.

In May, industry was given an opportunity to review the draft application guidelines to ensure they were compatible with industry needs. More than 30 responses were received from companies across the three programs, foreshadowing a strong level of interest among investors.

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Lloyd Lewis

www.todayville.com

President Todayville Inc., Honorary Colonel 41 Signal Regiment, Board Member Lieutenant Governor of Alberta Arts Award Foundation, Director Canadian Forces Liaison Council (Alberta) musician, photographer, former VP/GM CTV Edmonton.

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Alberta

Alberta’s fiscal update projects budget surplus, but fiscal fortunes could quickly turn

Published on November 21, 2024

Todayville

From the Fraser Institute

By Tegan Hill

According to the recent mid-year update tabled Thursday, the Smith government projects a $4.6 billion surplus in 2024/25, up from the $2.9 billion surplus projected just a few months ago. Despite the good news, Premier Smith must reduce spending to avoid budget deficits.

The fiscal update projects resource revenue of $20.3 billion in 2024/25. Today’s relatively high—but very volatile—resource revenue (including oil and gas royalties) is helping finance today’s spending and maintain a balanced budget. But it will not last forever.

For perspective, in just the last decade the Alberta government’s annual resource revenue has been as low as $2.8 billion (2015/16) and as high as $25.2 billion (2022/23).

And while the resource revenue rollercoaster is currently in Alberta’s favor, Finance Minister Nate Horner acknowledges that “risks are on the rise” as oil prices have dropped considerably and forecasters are projecting downward pressure on prices—all of which impacts resource revenue.

In fact, the government’s own estimates show a $1 change in oil prices results in an estimated $630 million revenue swing. So while the Smith government plans to maintain a surplus in 2024/25, a small change in oil prices could quickly plunge Alberta back into deficit. Premier Smith has warned that her government may fall into a budget deficit this fiscal year.

This should come as no surprise. Alberta’s been on the resource revenue rollercoaster for decades. Successive governments have increased spending during the good times of high resource revenue, but failed to rein in spending when resource revenues fell.

Previous research has shown that, in Alberta, a $1 increase in resource revenue is associated with an estimated 56-cent increase in program spending the following fiscal year (on a per-person, inflation-adjusted basis). However, a decline in resource revenue is not similarly associated with a reduction in program spending. This pattern has led to historically high levels of government spending—and budget deficits—even in more recent years.

Consider this: If this fiscal year the Smith government received an average level of resource revenue (based on levels over the last 10 years), it would receive approximately $13,000 per Albertan. Yet the government plans to spend nearly $15,000 per Albertan this fiscal year (after adjusting for inflation). That’s a huge gap of roughly $2,000—and it means the government is continuing to take big risks with the provincial budget.

Of course, if the government falls back into deficit there are implications for everyday Albertans.

When the government runs a deficit, it accumulates debt, which Albertans must pay to service. In 2024/25, the government’s debt interest payments will cost each Albertan nearly $650. That’s largely because, despite running surpluses over the last few years, Albertans are still paying for debt accumulated during the most recent string of deficits from 2008/09 to 2020/21 (excluding 2014/15), which only ended when the government enjoyed an unexpected windfall in resource revenue in 2021/22.

According to Thursday’s mid-year fiscal update, Alberta’s finances continue to be at risk. To avoid deficits, the Smith government should meaningfully reduce spending so that it’s aligned with more reliable, stable levels of revenue.

Author:

Tegan Hill

Alberta

Alberta fiscal update: second quarter is outstanding, challenges ahead

Published on November 21, 2024

Government of Alberta

Alberta maintains a balanced budget while ensuring pressures from population growth are being addressed.

Alberta faces rising risks, including ongoing resource volatility, geopolitical instability and rising pressures at home. With more than 450,000 people moving to Alberta in the last three years, the province has allocated hundreds of millions of dollars to address these pressures and ensure Albertans continue to be supported. Alberta’s government is determined to make every dollar go further with targeted and responsible spending on the priorities of Albertans.

The province is forecasting a $4.6 billion surplus at the end of 2024-25, up from the $2.9 billion first quarter forecast and $355 million from budget, due mainly to higher revenue from personal income taxes and non-renewable resources.

Given the current significant uncertainty in global geopolitics and energy markets, Alberta’s government must continue to make prudent choices to meet its responsibilities, including ongoing bargaining for thousands of public sector workers, fast-tracking school construction, cutting personal income taxes and ensuring Alberta’s surging population has access to high-quality health care, education and other public services.

“These are challenging times, but I believe Alberta is up to the challenge. By being intentional with every dollar, we can boost our prosperity and quality of life now and in the future.”

Nate Horner, President of Treasury Board and Minister of Finance

Midway through 2024-25, the province has stepped up to boost support to Albertans this fiscal year through key investments, including:

$716 million to Health for physician compensation incentives and to help Alberta Health Services provide services to a growing and aging population.
$125 million to address enrollment growth pressures in Alberta schools.
$847 million for disaster and emergency assistance, including:
- $647 million to fight the Jasper wildfires
- $163 million for the Wildfire Disaster Recovery Program
- $5 million to support the municipality of Jasper (half to help with tourism recovery)
- $12 million to match donations to the Canadian Red Cross
- $20 million for emergency evacuation payments to evacuees in communities impacted by wildfires
$240 million more for Seniors, Community and Social Services to support social support programs.

Looking forward, the province has adjusted its forecast for the price of oil to US$74 per barrel of West Texas Intermediate. It expects to earn more for its crude oil, with a narrowing of the light-heavy differential around US$14 per barrel, higher demand for heavier crude grades and a growing export capacity through the Trans Mountain pipeline. Despite these changes, Alberta still risks running a deficit in the coming fiscal year should oil prices continue to drop below $70 per barrel.

After a 4.4 per cent surge in the 2024 census year, Alberta’s population growth is expected to slow to 2.5 per cent in 2025, lower than the first quarter forecast of 3.2 per cent growth because of reduced immigration and non-permanent residents targets by the federal government.

Revenue

Revenue for 2024-25 is forecast at $77.9 billion, an increase of $4.4 billion from Budget 2024, including:

$16.6 billion forecast from personal income taxes, up from $15.6 billion at budget.
$20.3 billion forecast from non-renewable resource revenue, up from $17.3 billion at budget.

Expense

Expense for 2024-25 is forecast at $73.3 billion, an increase of $143 million from Budget 2024.

Surplus cash

After calculations and adjustments, $2.9 billion in surplus cash is forecast.

$1.4 billion or half will pay debt coming due.
The other half, or $1.4 billion, will be put into the Alberta Fund, which can be spent on further debt repayment, deposited into the Alberta Heritage Savings Trust Fund and/or spent on one-time initiatives.

Contingency

Of the $2 billion contingency included in Budget 2024, a preliminary allocation of $1.7 billion is forecast.

Alberta Heritage Savings Trust Fund

The Alberta Heritage Savings Trust Fund grew in the second quarter to a market value of $24.3 billion as of Sept. 30, 2024, up from $23.4 billion at the end of the first quarter.

The fund earned a 3.7 per cent return from July to September with a net investment income of $616 million, up from the 2.1 per cent return during the first quarter.

Debt

Taxpayer-supported debt is forecast at $84 billion as of March 31, 2025, $3.8 billion less than estimated in the budget because the higher surplus has lowered borrowing requirements.