Energy prices

The Fiscal Review Panel set the stage for the first budget of the new government. Table A1 of the NDP budget provided two full pages (13-14) listing the key assumptions underlying the budget. The assumption that the Fiscal Review Panel criticized was the price of energy. In the March budget, it was assumed that natural gas would sell for $4.25 US$/gigajoule in 2001 and for $3.05 US$/gigajoule in 2002. If government listened to its Fiscal Review Panel, a change in that assumption would explains the major forecast difference in revenue between the NDP and Liberal budgets. However, the Campbell government stuck with the NDP numbers!

Alberta's Ministry of Finance provides an excellent graph of the change in energy prices that shows what any finance minister is up against. Note that quotes on natural gas prices differ not just in whether they use US or Canadian dollars but also in the unit of measurement. Canadians use gigajoules while they use MMBTU in the US, 1 Gigajoule = .948213 MMBTU.

The Fiscal Update has reduced the assumption on the price on natural gas to $6.79 Cdn $/gigajoule for 2001 and to $4.50 Cdn $/gigajoule for 2002. To compare to the previous assumptions it is necessary to also look at the assumptions on exchange rates since the former assumptions were expressed in US $. The Fiscal Update (p. 14) assumes the exchange rate will be 65.5 for 2001 and 67.1 for 2002. That would make the gas prices $4.45 US/gigajoule for 2001 and $3.02 US/gigagoule for 2002. That's not much of a change from the assumptions made by the NDP. Perhaps that is why the note on page 27 says that revenue from natural gas and petroleum royalties are "unchanged from the March forecast." That is certainly not what one heard when the Fiscal Review Panel made its report!

There are two other components of energy income for the provincial government, dividends from BC Hydro and sales of the downstream benefits from the Columbia River Treaty. Hydro is estimated to return $75 million more than provided for in March. The drop in energy revenue is from the downstream benefits in the Columbia River Treaty (see Fiscal Update, table 2.5, Columbia River Treaty note on page 28).