Potash and oil are fuelling Saskatchewan’s rise in non-renewable resource revenue forecasted in the 2022-23 budget, but the market’s volatility is proving to be a challenge for the government to accurately forecast the income.
Non-renewable resource revenue is projected to be $2.9 billion, an increase of $1.6 billion from the 2021-22 budget. The increase is largely due to higher potash and oil price forecasts as a result of the “stronger-than-expected global demand,” according to Finance Minister Donna Harpauer.
“While volatile world events have made commodity prices difficult to forecast, as always our revenue forecasts are based on cautious oil price projections,” Harpauer said.
The WTI oil price is forecasted at $75.75 USD per barrel in the 2022-23 budget, based on industry projections. The government anticipates increasing demand to push the WTI oil price to an average of $79 USD per barrel in 2022
Realized potash prices for local producers are expected to average about $838.1 per KCI tonne in 2022, a 48 per cent increase from the 2021 level.
“Right now, those resource revenues are extremely high, we don’t know how long that will last,” she said.
“There are a number of factors driving those prices and they are not going to hold forever.”
Non-renewable resource revenue makes up about 17 per cent of the government’s total revenue. Harapauer said the government did not want to be completely reliant on the commodities because of the volatility in prices.
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If the WTI oil price changes by $1 USD per barrel, it will result in a subsequent change of $14 million in revenue, Harpauer said. Similarly, if potash prices change by $10 USD per KCI tonne, revenue will subsequently change by $49 million.
Inflation, global uncertainty, supply chain disruptions and the weather are all risks to the budget, Harpauer said.
“The challenge with resource revenues is that they are volatile,” she said. “Only time will tell.”
Trent Wotherspoon, finance critic for the official opposition, suggested the government is “understating their revenues” given current prices in both potash and oil, as well as other industry projections for those commodities.
“I feel the government is doing this in a deliberate way to manage political expectations, when really what they should be doing for Saskatchewan people who are facing crushing costs of living at this time, they need to provide them some relief,” Wotherspoon said.
While it is tough to project what will happen in the fiscal year ahead, Harpauer said, if potash and oil prices continue to soar, there would be discussions on how to spend the extra revenue.
“What I really don’t think we’re going to do is fall in the trap of putting it into ongoing year-over-year operating costs,” she said. “We fell in that trap before and it does not bode well for the province.”
More details to come...
