The government of Canada's top natural gas-producing jurisdiction is braced for a long spell of lean times from oversupplied North American markets.

The 2011-2012 Alberta provincial budget, announced Thursday, says "the outlook for natural gas is not expected to improve significantly in the short term. High production from U.S. shale wells has kept natural gas storage levels close to record highs reached last year. Prices are expected to remain relatively flat."

The government's new projections see Alberta gas fetching only annual averages of C$3.26/gigajoule (GJ) (US$3.42) for its 2010-2011 fiscal year ending March 31, then C$3.45/GJ (US3.62/MMBtu) in 2011-2012, C$4.05/GJ (US$4.25/MMBtu) in 2012-2013 and C$5.00/GJ (US$5.25/MMBtu) in 2013-2014. (The Canadian and U.S. dollars are about at par, but one MMBtu is about 5% more than one gigajoule.)

At the same time, the province's mainstay production from conventional sources is deteriorating -- both as a result of natural aging in gas fields and due to prolonged drilling slumps brought on by soft prices.

The government estimates that Alberta conventional gas production has dropped during its current fiscal year by 6.3% to 4.2 Tcf. "Conventional production is forecast to fall in 2011-2012 by another 9.8%," said the provincial budget. Coalbed methane production has stopped growing and is forecast to hover in an annual range of 275-300 Bcf, while no predictions are being made about potential Alberta shale production.

For the Alberta government, the bottom line to current and anticipated market conditions is a drastically reduced role for its former star revenue source. Only five years after annual provincial gas royalties peaked at C$8.4 billion, the take is forecast to recede to C$1 billion this fiscal year, then only recover to C$1.2 billion in 2012-2013 and C$1.5 billion in 2013-2014.

The waning of Alberta gas is partly offset by the waxing of the province's oilsands. Strong prices and especially growing production are forecast to generate provincial bitumen royalties of C$4.1 billion this fiscal year, C$5.6 billion in 2012-2013 and C$7.1 billion in 2013-2014. The provincial oil forecast, which is well known for official conservatism, expects benchmark West Texas Intermediate crude to average US$89.40/bbl in 2011-2012, US$95.50 in 2012-2013 and US$95.75 in 2013-2014.

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