CALGARY, Alberta (Reuters) - Alberta, the province whose oil wealth once made it the envy of Canada, said on Thursday it expects a C$1.4 billion ($1.1 billion) budget shortfall this year, and another deficit next year, due mostly to its drooping investment fund.
The forecasts -- which end 14 straight years of surplus budgets in the western Canadian province of 3.5 million people -- come at a time of falling energy prices and a major slowdown in oil industry activity.
"The dollars that we earned in the first part of the year obviously have helped sustain when oil fell more than $100 a barrel. So that's the good news -- that on the operating side we're relatively in order," Alberta Finance Minister Iris Evans said in her third-quarter update.
"On the investment side, yes, our investments have lost roughly 15 percent, and that's regrettable."
With deficit budgets, Alberta takes its place among Ontario, British Columbia and the federal government, which have all planned for falling revenues and higher spending.
Alberta's Heritage Savings Trust Fund, where the province squirrels away some of its oil and gas revenues, was worth C$14.5 billion at the end of 2008, down C$2.5 billion from the year before amid the global financial meltdown. Other endowments lost about C$500 million of their value.
The major supplier of energy to domestic and U.S. markets now expects 2008-09 revenue of C$35.6 billion against spending of C$37.1 billion.
When the government of Premier Ed Stelmach announced its budget last spring, it forecast a C$1.6 billion surplus.
Evans said Alberta will report another deficit in its next budget, due to be released on April 7.
Oil prices have fallen to around $40 a barrel from a record above $147 in July as global energy demand has dropped. Natural gas prices are about 40 percent lower than at this time last year.
Alberta expects U.S. oil to average $85.50 a barrel for its April 2008 to March 2009 fiscal year, down $8 from its second-quarter update. Domestic natural gas is predicted to average $7 a gigajoule, down 50 Canadian cents.
The take from nonrenewable resources makes up about a third of Alberta's total revenue.
Evans did not offer an estimate for next year's budget deficit but said it would be "as modest as possible" as the province tries to hold the line on major expenditures.
"We're not going to go out and blow the doors off because clearly, there's been no confidence that we've seen the bottom in the economy, so that's like a cloud over everything," Evans said.
Still, Alberta will keep its plans to invest C$2 billion in development of carbon capture and storage technology, seen by the government as its main way to allow development of the province's vast oil sands to continue amid concern over growing greenhouse gas emissions.
Reporting by Jeffrey Jones; Editing by Peter Galloway