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Alberta's oil sands at dusk. (Kevin Van Paassen/The Globe and Mail/Kevin Van Paassen/The Globe and Mail)
Alberta's oil sands at dusk. (Kevin Van Paassen/The Globe and Mail/Kevin Van Paassen/The Globe and Mail)

Governments say soaring loonie cancels royalty gains on high-price oil Add to ...

Soaring global oil prices are boosting government revenues beyond expectations in both Saskatchewan and Alberta but residents will see only a small benefit, highlighting once again the negative economic impact of a strong Canadian dollar.

Quarterly updates show both provinces are reaping windfalls as oil hovers above $100 per barrel, but the surpluses are being chewed up by the similarly high Canadian dollar. The dollar tends to rise with oil, and its strength hurts both provinces' exports.

If oil jumps $1 but the Canadian dollar gains one cent over a year, Alberta loses about $30-million in net total annual revenue while Saskatchewan gains about $2-million, according to government estimates.

As such, with oil prices and the dollar in lock-step, a Canadian oil boom just isn't what it used to be.

"Both balance one another. That's why even though we're seeing the $100 barrel of oil, it's not changing our projections very much," Saskatchewan Finance Minister Ken Krawetz said Friday, after releasing his government's third-quarter update.

The update reported an $89-million increase in projected annual royalty revenue from conventional oil since just three months earlier - part of an overall $311.4-million increase in projected revenue for resource-rich Saskatchewan.

Alberta's update, released the previous week, showed a combined $375-million increase in projected annual revenue since the previous quarter from conventional oil and bitumen.

But, as the Alberta update grimly notes, "the impact of the higher exchange rate has more than offset the effect" of high oil prices.

"Over the past year or more, as oil prices increase, any gain we're seeing on that side we're losing because of a result of the dollar being strong," Alberta Finance spokesman Bart Johnson said.

The effect of the high dollar is a blow to every Canadian export industry, particularly Ontario's once-mighty manufacturing sector. While the effect of a high price of oil is offset, the energy industry is better off than others, said Joseph Doucet, a professor of business at the University of Alberta.

"There's less net revenue in Canadian dollar terms coming in [to oil-rich provinces when the dollar is high] But think of the situation for forestry products, where the dollar increases while the traded price of a commodity, such as a two-by-four, doesn't change. You can actually be worse off," Prof. Doucet said. "It is what it is."

Saskatchewan is projected to buck a national trend by ending the current year with a surplus of about $40-million, and a number of key revenue sources showed strong projections in Friday's update.

Total annual potash revenue projections jumped $43.9-million as sales surged, corporate taxes were up $44.3-million and provincial sales-tax revenue was up $33.9-million, all compared to estimates made three months earlier.

The province already began spending the cash by announcing tens of millions of dollars in overdue infrastructure projects over the past month, Mr. Krawetz said.

"We're seeing confidence in the province of Saskatchewan. We're seeing it from many different avenues," Mr. Krawetz said.

Saskatchewan is projecting an average price of $81.85 for oil in the final quarter, while Alberta projects $81.45. Oil closed at more than $104, driven higher by unrest in North Africa and the Middle East. Mr. Krawetz said his province's estimate may be conservative, but is based on year-long price averages.

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