“At first it was quite daunting to think, ‘Oh my gosh, you’re going to be in finance’ . . . . Then you realize, ‘This is just like managing your chequebook.’” — Alberta Finance Minister Iris Evans, April 2009
Iris Evans has a long-standing affinity for playing the odds.
According to an April 2009 article in Maclean’s magazine, Alberta’s finance minister once put in 20 to 30 hours weekly entering sweepstakes, sometimes 35 at a time, while working as a registered nurse, teaching piano and raising three sons.
Evans’s gambles paid off handsomely. Her winnings included a year’s supply of Wonderbras, a lifetime supply of diapers, a Volkswagen Super Beetle and trips to Hawaii, Europe and the Caribbean, among other prizes.
“Entering contests, for at least two years, was a very profitable venture for me,” Evans recalled in the article.
Premier Ed Stelmach must be counting on Evans’s lucky stars to pull Alberta back into the black, given the government’s recent track record on deficit projections.
Late last month, Evans announced Alberta’s deficit would soar to $7 billion — $2 billion more than she forecast just four months previously — because natural gas prices hit a seven-year low.
As bad as a $7-billion deficit is in a province that once outlawed them, the final figure is likely to be much higher because Evans is betting that natural gas prices will be at least $4 per gigajoule for the remainder of the fiscal year.
The prediction was almost double the price of the September contract. As of mid-week, natural gas prices for the October contract were $2.73, down 25 cents — and falling.
Analysts are of two minds about the direction of natural gas prices.
Bulls suggest natural gas inventories are not as high as they seem and prices are as low as they will go. Record-low prices will spur manufacturers and power generators coming out of the recession to turn to natural gas rather than coal, further depleting inventories. If hurricane season is as disruptive as it has been in the past, then natural gas prices will be back in double-digits in no time.
Bears argue natural gas inventories are so much larger than any previous time in history that nothing short of a devastating hurricane season will alter them significantly in the short term. Natural gas prices could plummet to as little as $1 per gigajoule as supply further outstrips demand.
The bear’s long-term outlook is equally pessimistic, with at least one analyst predicting that supply and demand will be unbalanced until early 2011.
If there is any truth to the claim that Alberta’s royalties drop $1.3 billion for each $1 decline in the price of natural gas, then the odds are stacked against Evans.
But she remains bullish. When asked whether the deficit could get worse if natural gas prices continued to decline, Evans replied, “Not in this forecast.”
That’s a remarkable statement coming from a finance minister whose previous forecast was out by a mere $2 billion.
Forty years ago, it’s unlikely Evans would have drawn up a family budget based on the suggestion that her salary could double over a seven-month period, especially when presented with evidence running to the contrary.
And yet that is exactly what the provincial government has done when it comes to its deficit projections, which seem, at least in the short term, wildly optimistic.
It would seem that managing the provincial budget is more difficult than balancing a chequebook, after all.
And Albertans deserve a more honest assessment of the province’s finances if they are to tighten their collective belts.
Cameron Kennedy is an Advocate editor.