Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
After a record-breaking 2022, the volume of oil produced in Alberta has reached a new record in 2023. As such, the province produced a little more than 221.5 million cubic metres of oil last year (almost 1.4 billion barrels). This is a 2.1% increase compared to 2022. Moreover, the monthly production in December surpassed 20 million cubic metres for the first time ever. The performance in 2023 is notable, especially in light of the disruptions to the extraction sector in April-May due to the wildfires.
Gains in oil production in recent years have been enabled mainly through efficiency gains, as oil producers have invested in reducing their costs and increasing the productivity of existing production. Moreover, the filling up of the soon-to-be operational TransMountain pipeline likely also boosted production, especially in December.
However, despite a record in production volume, we estimate that the value of the oil produced in the province is 13.1% lower than it was in 2022, at about $111.5bn. In 2022, the province produced a record of about $128.3bn. This situation is the result of oil prices being almost 20% lower on average in 2023 compared to the previous year.
The lower value of oil produced in 2023 will have a direct impact on the provincial government finances through lower royalties on non-renewable resources. However, compared to the assumption in Budget 2023, revenues from royalties are on track to be very close to budget and could even be slightly above budget. While WTI has been lower than budgeted so far this fiscal year, the differential between WCS-WTI has been narrower. Moreover, the Canadian dollar has been weaker than expected, giving a boost to revenues once converted.
Further increases in oil production should be expected in 2024. The TransMountain pipeline coming into operation in 2024, unless an unforeseen event causes further delays, more oil production to reach markets, while avoiding generating the over-supply that leads to a widening of the spread between the Western Canada Select (WCS) and the West Texas Intermediate (WTI).
The energy sector is expected to remain a strong tailwind to the Alberta economy in 2024, supported by increased production and investment in the sectors. However, as we wrote in the past, the positive terms of trade from the oil and gas sector has been smaller in recent years despite record production and revenues (see Where’s the boom? How the impact of oil on Alberta may have permanently weakened) and, in consequence, the spillovers to the rest of the economy smaller. This situation has broad implications for the Alberta economy and is responsible for the province’s underperformance in wages and income compared to the rest of Canada (Where’s the boom? And the rise and fall of the Alberta Advantage.)
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