Budget 2026: What It Means for Oil & Gas

Sector Impact Summary

Budget 2026 delivers a sobering message for Alberta's oil and gas sector: the province is planning for lower prices, tighter margins, and a substantial drop in resource revenue. With the WTI oil price assumption set at US$60.50/bbl -- the lowest budget assumption in recent years -- bitumen royalty revenue is forecast to fall $3.0 billion year-over-year to $9,688 million. This single decline is the largest revenue drop in the entire budget and a primary driver of the province's projected $9.4 billion deficit.

Despite the price headwinds, production growth remains a structural positive. Raw bitumen output is forecast to rise 2.9% to 3,691 thousand barrels per day in 2026-27, supported by strong corporate balance sheets and expanded pipeline capacity. Natural gas royalties are also moving in a favourable direction, rising 29% to $942 million as the Alberta Reference Price recovers from C$1.70/GJ to C$3.00/GJ.

The medium-term outlook offers reason for cautious optimism. WTI is expected to recover to US$67-68/bbl by 2027-28, and an additional 700,000 bpd of pipeline egress capacity is projected to come online between 2026 and 2030. However, the gap between the current price environment and the recovery scenario underscores the volatility risk that defines this budget cycle.

Key Budget Measures

Bitumen Royalty Revenue

Bitumen royalties are budgeted at $9,688 million, down from $12,669 million in the 2025-26 forecast -- a decrease of 23.5%. The decline is driven by lower WTI prices and a wider light-heavy differential. Revenue is expected to rebound to $12,765 million by 2028-29 as prices recover.

Crude Oil Royalty Revenue

Crude oil royalties are budgeted at $2,120 million, down from $2,317 million in 2025-26 (a decrease of 8.5%). Weaker oil prices are expected to weigh on conventional drilling activity, with conventional production dipping slightly to 544 thousand barrels per day.

Natural Gas and By-Products Royalty

Natural gas royalties are budgeted at $942 million, up from $730 million in 2025-26 -- an increase of 29%. This recovery is driven by the Alberta Reference Price rising from C$1.70/GJ to C$3.00/GJ, with further growth to $1,057 million projected by 2028-29.

Total Non-Renewable Resource Revenue

Total non-renewable resource revenue is forecast at $13,213 million, representing 18% of total provincial revenue. This is down $3.1 billion from the 2025-26 forecast of $16,285 million, but is expected to recover to $16,892 million by 2028-29.

Energy and Minerals Ministry Spending

The Energy and Minerals ministry total expense is budgeted at $894 million, a decrease of $133 million (13%) from 2025-26, primarily from a $189 million reprofile of capital grants for the Alberta Petrochemicals Incentive Program and Carbon Capture and Storage Program.

West Coast Pipeline Pre-Feasibility Study

The Canada-Alberta MOU designates a proposed bitumen pipeline to BC's west coast as a project in the national interest. $7 million is allocated for a pre-feasibility study under the Federal Major Projects Office.

Funding Changes

Item	2025-26 Forecast ($M)	2026-27 Budget ($M)	Change (%)
Energy and Minerals total expense	1,028	894	-13.0%
Bitumen royalty revenue	12,669	9,688	-23.5%
Crude oil royalty revenue	2,317	2,120	-8.5%
Natural gas and by-products royalty	730	942	+29.0%
Bonuses and sales of Crown land leases	406	331	-18.5%

Capital Investment

The Energy and Minerals ministry capital plan totals $153 million over three years, a modest allocation reflecting the sector's reliance on private investment rather than government capital.

Project	Three-Year Total ($M)
Energy and Minerals total capital plan	153
Alberta Petrochemicals Incentive Program	87
Information Technology and Other General Capital	66

Risks

Oil price sensitivity (High). Every $1 US/bbl decline in WTI reduces provincial revenue by approximately $680 million. Budget 2026 assumes US$60.50/bbl, well below recent averages. A further decline to US$55/bbl would add roughly $3.4 billion to the deficit.

Light-heavy differential widening (High). Every $1 US/bbl widening in the light-heavy differential reduces revenue by approximately $670 million. The differential is forecast to widen from US$11.20/bbl in 2025-26 to US$13.00/bbl in 2026-27 as heavy crude supply increases.

Venezuelan crude competition (Medium). Potential increases in Venezuelan heavy crude supply to the U.S. Gulf Coast could displace demand for Alberta barrels and pressure the WCS differential.

U.S. trade policy uncertainty (Medium). While over 90% of Alberta's goods exports are CUSMA-compliant and tariff-exempt, uncertainty around the future of CUSMA and potential new tariffs poses risks to market access.

Global oversupply (Medium). OPEC+ production decisions and potential easing of sanctions on Iran contribute to persistent downward pressure on global oil prices.

Opportunities

Pipeline egress expansion (High). Approximately 700,000 bpd of additional egress capacity is expected between 2026 and 2030 from TMX debottlenecking, Express Pipeline enhancements, and Enbridge Mainline optimizations. This reduces the transportation discount and improves netbacks.

Production growth momentum (High). Alberta's bitumen and conventional oil production is forecast to reach over 4.3 million barrels per day by 2027. The oil sands supply share of global consumption is targeted to grow from 3.4% to 3.8% by 2028-29.

LNG Canada Phase 1 ramp-up (Medium). LNG Canada shipments are ramping up throughout 2026, with potential for additional LNG projects. This supports natural gas prices and drilling activity.

Growing Asian demand for heavy crude (Medium). Heavy oil export volumes to Canada's west coast through TMX are up 50% year-to-date, with the vast majority shipped to China. Alberta's strong market position in the U.S. Midwest also mitigates Venezuelan supply risks.

West coast pipeline MOU (Medium). The $7 million pre-feasibility study for a bitumen pipeline to BC's west coast, designated as a national interest project, could open a significant new export route.

What's Missing

• No specific fiscal contingency or reserve fund for further oil price declines below US$60.50/bbl
• Limited detail on how the province would manage a scenario where CUSMA is not renewed
• No explicit strategy for managing transition risk if global oil demand peaks earlier than expected
• Budget relies on price recovery to US$67/bbl by 2027-28 with limited backup plan if recovery stalls

Net Assessment

Budget 2026 is a challenging year for Alberta's oil and gas sector. The $3.0 billion drop in bitumen royalties is the single largest revenue decline driving the province's $9.4 billion deficit, and the revenue sensitivity of $680 million per $1/bbl swing in WTI remains the province's most significant fiscal risk. However, robust production growth, expanded pipeline capacity, and a favourable medium-term price outlook provide a basis for recovery -- if global market conditions cooperate.