The government of Alberta, sideswiped by the recession and depressed natural gas prices, is stepping up its efforts to resuscitate drilling and compete against massive supplies of shale gas from British Columbia and the United States.

Premier Ed Stelmach’s government is expected on Thursday to extend royalty breaks on natural gas production. Observers also believe the government could make one permanent change that would see a low rate of 5 per cent on the production from gas wells in their first year, a move considered key by the industry.

A spokesman for the provincial Energy Minister said the government would not announce new incentives but rather extend a program related to existing breaks, allowing drillers to plan.

The changes would mark the fourth adjustment of royalty rules since a decision to raise rates was made in late 2007. But for the first time the province is also expected to acknowledge the stiff competition for investment capital from recent massive shale gas discoveries in British Columbia, Texas and Louisiana. Shale gas is natural gas trapped in barely-porous rock.

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It’s a major reversal from even last August, when government officials were projecting Alberta would rake in an $8.5-billion surplus by the end of the 2008-09 fiscal year.

Alberta Finance Minister Iris Evans said the province’s Heritage Savings Trust Fund, a rainy-day savings hit, has been hit particularly hard by the current global financial turmoil. There are estimates its value has dropped by $3-billion from $17-billion.

She said the Progressive Conservative government, which has governed Alberta since 1971, is looking at ways to cut spending. However, she said the government has no immediate plans to abandon a $2-billion carbon capture and storage project. The aim of the project, in part, is to clean up the province’s image as an environmental wasteland.

Ms. Evans said that while Alberta has entered a “sharp period of recession” and will likely shed 50 jobs a day in the coming year, its economic position is still enviable when compared to other jurisdictions.

“This is like riding a very bad tidal wave, but in the best boat possible,” she said. “Alberta has absolutely got more resources available to it than anybody else facing a decline. Where are they going to get the money from?”

Opposition parties have been warning for years that the Tory government’s spending was out of control, and that it was not doing enough to save the eye-popping surpluses it was reaping from soaring oil and natural-gas royalties.

In 2007, the finance minister of the day, Lyle Oberg, speculated a deficit was possible if the province could not rein in its runaway spending. Since 2005-06, total government spending has jumped at least 32 per cent and per capita spending has been higher than that of any other provincial government.

Economist Andre Plourde says it should come as no surprise that the resource-based economy is taking a hit now that oil prices have dropped from a summer high of US$147 a barrel to below US$35.

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