But it says challenges remain for the energy sector and this poses a downside risk to the overall outlook

Mario ToneguzziWith the continued recovery in Alberta’s domestic economy and more oil moving by rail, Alberta’s real gross domestic product is set to grow by 2.6 per cent in 2018 and 2.2 per cent in 2019, says a new report released on Wednesday by the Conference Board of Canada.

“However, challenges remain for the energy sector and this poses a downside risk to the outlook and economic growth in 2019 could be lower. The combination of a lack of adequate pipeline transportation capacity and maintenance at U.S. refineries that process non-conventional oil from Alberta is casting a shadow over the long-term prospects for the sector. Most recently, the weakness in the West Texas Intermediate crude oil price and the provincially mandated reduction in oil production to alleviate the supply glut are also adding to the uncertainty,” said the board’s Provincial Outlook: Autumn 2018.

The strongest economic performances next year are forecast for Newfoundland and Labrador (5.2 per cent), British Columbia (2.7 per cent) and Prince Edward Island (2.7 per cent).

In another report, RBC Economic Research’s Provincial Outlook said pipeline bottlenecks and soft prices are adding to oil and gas woes in Alberta and those woes will cause growth to decline to 1.5 per cent in 2019 from 2.4 per cent this year.

“But there is light at the end of the tunnel. An expansion in pipeline capacity bodes well for growth in 2020, with the economy bouncing back to 2.7 per cent. Calgary’s recent decision to take a pass on the 2026 Olympic Winter Games summed up Alberta’s economic mood. The final months of 2018 cast a pall on what was otherwise a year of moderate growth for the province,” said the report.

“Growing output and transportation bottlenecks combined to push down prices for Alberta heavy crude, leading the government to order a production cut of 8.7 per cent starting in January 2019 to clear out high inventories. The curtailment will have negative implications for 2019. We expect the pace of growth to slow to 1.5 per cent in 2019 from 2.4 per cent in 2018.

“Recovery from 2014’s oil-price rout hasn’t been a smooth process for Alberta. The differential between the Western Canadian Select and West Texas Intermediate oil benchmarks hit record highs in the latter part of 2018 – with WCS selling for US$50 less a barrel at one point. While this was a result of several U.S. refineries shutting down temporarily for maintenance (which have since come back online), pipeline constraints continue. Rising oil production combined with transportation limitations have resulted in a buildup of inventories.”

The report said the oil production cut could lower GDP growth in Alberta by as much as a percentage point, but the impact will depend on how prices and inventories respond to the cuts.

alberta economic growth

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