"A return to extremely volatile energy prices has created conditions that we cannot ignore," Prentice said Tuesday in a speech to the Edmonton Chamber of Commerce.
"Tough choices are going to have to be made and they will be made."
Prentice was reacting to the price of oil that was around the US$100 barrel mark in the summer but has since fallen to the mid to low $60-range this week due to a supply glut caused by OPEC and increased production in the United States.
The price trough forced the province last month to revise its revenue forecasts for the current fiscal year from a surplus of $1.1-billion to $933 million.
The province forecast oil at US$95 a barrel in the spring budget but last month revised that to $75 a barrel.
Prentice has promised to keep the operating side of the budget balanced, but when asked later by reporters if that balance is in jeopardy, he said, "It remains to be seen.
"Clearly it makes it more challenging to balance the budget even in this fiscal year, let alone the fiscal year that we're facing," said Prentice.
Prentice has been making similar speeches in recent weeks, warning of "prudence" and "consequences" with low oil prices, the key driver of Alberta's economy.
He reiterated Tuesday his plan to look for in-house savings while keeping the rate of future spending increases below the benchmark level of inflation plus population growth.
He added that "current forecasting would mean that this (belt-tightening) will actually need to be even tighter."
Prentice said the cuts will not impact the core programs of education, health and care for seniors.
The savings, he said, are there.
"We are spending on a per capita basis in most areas more than anyone in Canada," he said.
He wouldn't say what changes will be made on the revenue side, but said he won't punish future generations with exorbitant debt.
The premier also said he wouldn't introduce a sales tax.
Prentice didn't close the door to changes to personal and corporate income taxes, but said "Albertans cannot be asked to pay more without first seeing clear evidence that we're doing more and as much as we possibly can with the dollars that we currently have."
NDP Leader Rachel Notley said Prentice is laying the groundwork for steep cuts to programs and benefits for everyday Albertans.
Notley said Prentice needs to bring back a progressive income tax and do away with the current 10 per cent flat tax on income she says benefits only the wealthy.
"I would have liked to have seen (Prentice) deliver his cautious, prudent message of impending austerity to any one of the number of very wealthy and privileged Albertans who have been benefiting from our flat tax and low (oil) royalty regime for so many years," said Notley.
"We already have a province where inequality is growing.
"And if they choose to deal with this financial crunch by once again pulling services from those Albertans who most rely on them, then that problem is just going to get larger and larger."
Also Tuesday, the new boss of the Canadian Association of Petroleum Producers spoke to the Calgary Chamber of Commerce.
He struck an optimistic tone about low oil prices, saying while there will likely be some short-term belt-tightening, "CAPP looks at the longer view."
"We are an industry that has come from far lower prices in the past," Tim McMillan, a former Saskatchewan cabinet minister, told reporters after the speech.