Budget 2025: What It Means for Oil & Gas

Sector Impact Summary

Alberta Budget 2025 delivers a sobering message for the oil and gas sector: resource revenues are falling sharply even as production continues to climb. Bitumen royalty revenue is projected at $12,830 million in 2025-26, a decline of $4,029 million (23.9%) from the 2024-25 third quarter forecast of $16,859 million. This single revenue line accounts for the largest portion of the province's overall $6.6 billion revenue decline and is the principal driver of the projected $5.2 billion deficit.

The revenue drop reflects a convergence of unfavorable price assumptions. The budget sets West Texas Intermediate (WTI) at US$68 per barrel, down US$6 from the prior year. The light-heavy oil price differential is forecast to widen to US$17.10 per barrel from US$13.20, compressing the effective price Alberta producers receive. Western Canadian Select at Hardisty is projected at C$73.10 per barrel, down from C$84.70. These assumptions are set against a backdrop of potential U.S. tariffs, with the budget baseline incorporating a 10% tariff on energy products, lower than the 15% imposed on other goods.

Despite the revenue headwinds, production fundamentals remain strong. Raw bitumen output is forecast at 3,558 thousand barrels per day in 2025-26, rising to 3,752 thousand by 2027-28. Conventional crude oil production is projected at 519 thousand barrels per day, though this line is in gradual decline, forecast to fall to 504 thousand by 2027-28. The completion of the Trans Mountain Pipeline expansion (TMX) and LNG Canada Phase 1 provide critical market diversification at a time when trade relations with the United States face unprecedented uncertainty.

Key Budget Measures

Bitumen royalty revenue: $12,830 million. This is the single largest revenue line item for the province and represents a 23.9% decline from the prior year. The drop is driven by lower benchmark prices and a wider differential, not by production declines. Revenue is forecast to recover modestly to $13,138 million in 2026-27 and $13,499 million in 2027-28. (Source: Fiscal Plan 2025-28, Fiscal Summary, p.17)

Other resource revenue (natural gas, rentals, fees): $4,237 million. Down $413 million (8.9%) from the 2024-25 forecast of $4,650 million. Natural gas and by-products royalties are estimated at $1,228 million, up modestly from $1,161 million, supported by the doubling of AECO natural gas prices to C$2.50/GJ from C$1.20/GJ. (Source: Fiscal Plan 2025-28, Revenue, p.63)

Energy and Minerals ministry operating expense: $892 million. A modest $12 million increase over the prior year. The ministry manages regulation, policy development, royalty frameworks, and subsurface resource stewardship. (Source: Government Estimates 2025-26)

Carbon Capture and Storage Initiative: $36 million. This is a 2025-26-only allocation as the government's funding agreements for the Quest and Alberta Carbon Trunk Line (ACTL) projects end in 2025. Both facilities are fully operational. (Source: Capital Plan Details by Ministry 2025-28)

10% U.S. tariff on energy products. The budget baseline assumes energy exports face a lower tariff rate than the 15% applied to other goods, reflecting the strategic importance of Alberta crude to U.S. refineries. (Source: Fiscal Plan 2025-28, Overview, p.10)

Funding Changes

Item	2024-25 Forecast	2025-26 Estimate	Change
Bitumen royalties	$16,859M	$12,830M	-$4,029M
Other resource revenue	$4,650M	$4,237M	-$413M
Energy and Minerals operating expense	$880M	$892M	+$12M
CCS Initiative capital	N/A	$36M	One-time

(Source: Fiscal Plan 2025-28, Fiscal Summary, p.17; Expense, p.85)

Capital Investment

The Energy and Minerals capital plan totals $387 million over three years (2025-28), allocated as follows:

• Alberta Petrochemicals Incentive Program (APIP): $311 million over three years ($181M in 2025-26, $61M in 2026-27, $69M in 2027-28). While primarily a petrochemicals program, APIP supports value-added processing of oil and gas feedstocks.
• Carbon Capture and Storage Initiative: $36 million in 2025-26 only. Funding agreements for Quest (operated by Shell at Scotford) and ACTL conclude in 2025.
• IT and general capital: $40 million over three years for royalty system management, mineral resource assessment, and regulatory technology.

(Source: Capital Plan Details by Ministry 2025-28)

Risks

Oil price decline. WTI is forecast at US$68/bbl, but OPEC+ output increases, global demand concerns, and trade uncertainty could push prices lower. Every US$1 per barrel decline in WTI reduces provincial revenue by approximately $750 million. A scenario where WTI averages US$60/bbl would cost the province roughly $6 billion in additional revenue loss. (Source: Fiscal Plan 2025-28, Revenue, p.63)

Wider light-heavy differential. The differential is forecast to widen to US$17.10/bbl from US$13.20. Each additional US$1 per barrel widening reduces revenue by approximately $740 million. Tariffs could push the differential wider still if U.S. refiners seek to renegotiate supply agreements. (Source: Fiscal Plan 2025-28, Revenue, p.63)

U.S. tariff escalation. While the baseline assumes a 10% energy tariff, the trajectory and duration of tariffs remain uncertain. The moderate trade conflict scenario built into the budget could worsen, particularly if retaliatory measures escalate.

Conventional crude displacement. Conventional crude oil production is forecast to decline from 528 thousand to 504 thousand barrels per day by 2027-28, as it faces competition from rising U.S. domestic production.

Opportunities

Trans Mountain Pipeline expansion (TMX). TMX has increased export capacity and provides optionality for producers to access Pacific markets, helping cushion the impact of U.S. tariffs and supporting WCS prices above C$70/bbl. The system currently has spare capacity, and Enbridge is also planning enhancements to existing pipelines.

LNG Canada Phase 1 completion. The completion of LNG Canada Phase 1 is expected to significantly boost natural gas prices, with the AECO forecast rising from C$1.20/GJ to C$2.50/GJ. This more than doubles natural gas royalty revenue expectations.

Continued bitumen production growth. Raw bitumen production is forecast to grow approximately 2% annually, from 3,455 thousand barrels per day in 2024-25 to 3,752 thousand by 2027-28. Oil sands producers have significantly lowered breakeven costs over the past decade, with operating costs falling 10% from a year ago.

Weaker Canadian dollar. The Canadian dollar is forecast to weaken to US69.6 cents from US71.7 cents. Since Alberta oil is priced in U.S. dollars, a weaker loonie increases the Canadian dollar value of oil revenues. Each one-cent change in the exchange rate affects revenue by approximately $560 million. (Source: Fiscal Plan 2025-28, Revenue, p.63)

What's Missing

The budget does not include specific provisions for the scenario where U.S. energy tariffs escalate beyond the assumed 10%. There is no dedicated fund or program to support oil and gas producers facing tariff-related margin compression. The CCS Initiative funding ends in 2025 with no announced replacement program for future carbon capture projects. There is no new upstream investment incentive program to complement the downstream-focused APIP. The budget also lacks detail on how the province plans to leverage TMX spare capacity for market diversification beyond advocacy and promotion efforts.

Net Assessment

The oil and gas sector faces the most consequential budget year in recent memory, with bitumen royalties down $4 billion driving the province into a $5.2 billion deficit. Production growth and new export infrastructure provide resilience, but the sector remains highly exposed to oil price and exchange rate volatility, with each US$1 per barrel move in WTI worth $750 million in provincial revenue. The near-term outlook is negative, though medium-term fundamentals including TMX, LNG Canada, and cost-efficient production growth remain supportive.