VICTORIA – A former Bank of Montreal chief economist hired by the B.C. government to review its budget says the numbers are okay, but recommended the Finance Ministry scale back its forecasts for natural gas revenues by up to $70 million.
The review by Tim O’Neill was released Monday, a day before Finance Minister Mike de Jong was set to table what he says will be a balanced budget.
O’Neill’s 22-page report called for additional prudence for natural gas revenue projections for this year’s budget and budgets for the following two years.
The report said B.C.’s natural gas revenue projections have been overstated in five of the last eight years and O’Neill suggested extra caution is needed when factoring those revenues, especially since natural gas prices are at record lows.
“Given the persistent over estimation of natural gas revenues in recent years and the material negative impact on total revenue expectations, it would be wise for the budget to incorporate price forecasts closer to the lower bound of the private sector forecast range than is contemplated in the projections that were reviewed,” said the report.
O’Neill’s report recommended the budget base its natural gas revenue projections on a natural gas price that ranges between $1.80 and $1.90 a gigajoule.
O’Neill’s report said if the government based its natural gas revenue projections on a price at $1.85, that would lower the Finance Ministry’s budget estimate numbers between $60 million and $70 million.
A government source said last week the Finance Ministry had revised its budget numbers after receiving O’Neill’s report. The source would not say how deeply it cut into its original revenue projections.
Last September, de Jong said declining natural gas revenues had blown a hole in the government’s budget plans.
He said the three-year revenue forecast for natural gas revenue was $1.9 billion, but price drops cut that estimate by $1.1 billion. De Jong said the price for natural gas was $6.33 a gigajoule in 2008, but dropped to $2.15 this year.
Materials provided by the Finance Ministry during de Jong’s quarterly update last September stated that every 50-cent change in the price of natural gas equals revenue changes of plus or minus $72 million to $110 million.
O’Neill’s report said overestimating natural gas revenues can have impacts on the budget bottom lines in the hundreds of millions of dollars, which caused him to call on the Finance Ministry to dial down its estimates for the projected returns of the volatile commodity.
“Natural gas revenues have been overprojected in five of the last eight years and the average size of these negative variances is substantial,” said the report. “That is a key reason for my suggesting that the forecast for natural gas revenues be shaded down further in the upcoming budget.”
The report came just a week after the Liberal government’s Throne Speech predicted B.C. could reap at least $100 billion in revenues generated by exports of liquefied natural gas over the next 30 years.
As for the general budget projections, O’Neill’s report found everything pretty much in order.
“I have concluded that there are no glaring problems or inadequacies that need to be addressed,” the report states.