Despite lower natural gas prices and therefore royalties, the Alberta government isn’t worried. Besides its rainy day fund, the province is doing a booming business in the sale of mineral rights to prospective drillers.

Alberta has lowered its price expectations for natural gas, expecting production will fetch an average of only C$3.30/gigajoule (GJ) (US$3.46/MMBtu) during the provincial treasury’s fiscal year ending March 31.

The new forecast in the latest quarterly budget update is C15 cents/GJ (US16 cents/MMBtu) lower than even the hard-times C$3.45/GJ (US$3.62/MMBtu) that the Conservative government projected in its original 2011-2012 budget last spring.

The treasury continues to stand by a previous gas royalties forecast of C$1 billion (U.S. dollar at par) for the current year. Production is modestly on the rise as a byproduct of enthusiastic drilling for oil and even higher-priced liquid byproducts of gas.

The province’s forecast of 2011-2012 gas royalties is severely depressed by historical standards. The anticipated current fiscal year total is down by 88% from the record of C$8.4 billion set in 2005-2006, when prices peaked across North America in the wake of hurricanes that damaged production installations in the Gulf of Mexico and set off a continentwide supply scare.

But the government is continuing to live off a rainy-day fund built up with surplus royalty revenues left over after paying off its accumulated debt during the gas fat years of the early 2000s.

Despite a forecast deficit of C$3.1 billion — more than double the red ink of C$1.3 billion forecast by the last budget quarterly statement in August — the Conservative regime expects to get through 2011-2012 without resorting to borrowing.

The cash shortfall is being paid as the province goes along by tapping a unique institution known as the Alberta Sustainability Fund. Even after being drawn down to cover the deficit, the rainy-day kitty is expected to finish the current fiscal year still in flush condition, holding C$8 billion, which is C$2.8 billion more than expected last spring.

Regardless of the depressed gas royalties — previously the treasury’s biggest single revenue source — the Alberta government also expects to book an increase in overall energy resource revenues for 2011-2012.

The star performer is turning out to be twice-monthly auctions of mineral rights. Sales revenues for 2011-2012 alone are forecast to hit a record C$3.3 billion, or almost C$1 billion more than summer forecasts that were regarded as exceptionally buoyant.

Companies are lining up to buy unconventional oil and gas-liquids prospects that can be tapped with the new generation of horizontal drilling and rock-fracturing fluid injections originally developed in the United States for shale gas production. Both volumes of rights sales and auction prices paid per acre continue to be on the rise, the government reported.

The province’s opposition parties — centrist Liberals, leftish New Democrats and the U.S. Tea Party-like Wildrose Alliance — called the latest budget quarterly a warning that the government is a big spender that relies on luck with once-only natural resource revenues.

But it’s all going according to plan, suggested Alberta Finance Minister Ron Liepert, who was promoted from the cabinet’s energy portfolio by the Conservatives’ newly elected leader, Premier Alison Redford, the first woman to hold Alberta’s top political job.

“Despite the volatility in Europe and the U.S., Alberta remains in an enviable economic position,” Liepert said in releasing the budget quarterly statement. “Our decisions in the past” — the Conservatives celebrated 40 consecutive years in power in Alberta this summer — “to eliminate the debt and build a short-term savings account are paying off today. We are keeping taxes low and spending on services that Albertans have told us are their priority,” notably medicare and education.

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