Deloitte Sees No Price Relief for Canadian Gas Producers
Management consultancy Deloitte says ongoing gas infrastructure issues in Alberta and burgeoning supply growth in the US will keep a lid on AECO gas prices in 2018.
In its December 31 oil and gas price forecast, Deloitte’s Resource Evaluation & Advisory (REA) group suggested some modest recovery in prices experienced in 4Q2017 are unlikely to hold for long, as cold temperatures which helped the recovery at AECO have already moderated and more maintenance programs next summer will likely bring renewed price volatility.
AECO prices have also felt the impact of increased US natural gas production, from both shale plays like Marcellus and from solution gas associated with oil production from shale and tight oil fields like the Permian, Eagle Ford and Bakken. That solution gas accounts for an estimated 11% of total US gas production.
“With increased domestic supply, the US can export additional volumes to Mexico by pipeline and abroad through LNG facilities,” the Deloitte forecast said. “The US grew its natural gas export market by 31% in 2017, with the majority of pipeline export volumes directed to Mexico, and…LNG export volumes (were) more than three times 2016 average volumes.”
Canadian gas exports to the US were flat in 2017, Deloitte said, and lacking progress on the LNG front, Canadian producers will have limited ability to access new markets. That, combined with increased US production, will keep the AECO gas price at just C$2.00/’000 ft3 in 2018, down from its forecast 2017 average of C$2.16/’000 ft3.
“Uncertainty of AECO pricing in a volatile environment may hinder Canadian dry gas producers from moving forward with their development plans,” Deloitte said. “Producers may be quick to shut in production if there are similar maintenance outages to those that occurred in summer 2017. Companies will also likely hedge significant volumes to protect against price volatility.”
The same growing supply issues in the US, Deloitte said, will also exert downward pressure on the Nymex Henry Hub gas price, which it forecasts will average US$2.80/mn Btu in 2018 compared to US$2.99/mn Btu in 2017.