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Erwin Cifuentes

Erwin Cifuentes

Erwin Cifuentes is a Contributing Editor for Southern Pulse Info where he focuses on politics, economics and security issues in Latin America and the Caribbean.…

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Tough Days Ahead For Canada’s Natural Gas Producers

Natural Gas Pipeline

Canadian natural gas producers will most likely continue to face increased short-term difficulties due to the twin factors of lower prices and stronger competition from the U.S., according to a study released earlier this month by Canada’s National Energy Board (NEB).

The “Short-term Canadian Natural Gas Deliverability 2016-2018 – Energy Market Assessment” study anticipates that natural gas prices will tumble from an average of about US$2.70 per million British thermal units (BTU) in 2015 to a mid-range estimate of US$2.50 per million BTU in 2016.

The NEB also posits that the price of Canadian natural gas this year could reach as high as US$3.00 per million BTU, which sits somewhat below the 2014 peak of nearly US$4.50 per million BTU.

The NEB expects prices to rebound in 2017 and 2018 by an average of US$2.75 per million BTU and US$3.00 per million BTU, respectively. Paul Mortensen, the NEB’s director of energy supply, implied that such an improvement would be welcomed by gas producers as prices will likely start rising in the upcoming winter months. Nevertheless, the projections continue to be short of prices from 2014, and substantial relief could take a while to develop.

The NEB noted that gas production has risen 2.4 percent between 2014 and 2015 in order to meet a slight bump in domestic demand. North American producers have faced diminished revenue from lower commodity prices, yet investigators admitted that Canadian firms face added problems from the purchasing of equipment and supplies with the stronger U.S. dollar. The extra squeeze could lead to further decreases in drilling activity, layoffs, and seeking price concessions from suppliers in order to reduce costs. Of particular concern for the NEB are small and mid-sized Canadian producers that could have difficulty accessing capital.

Exports to Canada’s southern neighbor remained flat in 2015 while imports suffered a moderate decline. The NEB did point out, however, that exports to the U.S. Midwest region continued to slide since 2015 despite increased natural gas sent to the western states. Related: Kurds To End Oil Standoff With Baghdad For $1B

A more pressing concern regarding the U.S. involves shale resources in the Appalachian basin that have already significantly displaced Canadian exports to northeastern U.S. states. Multiple pipeline projects flowing gas out of Marcellus and Utica are scheduled to be operational by 2017 and 2018. The NEB feels this could further challenge western Canadian gas in key domestic markets.

The report also details how the U.S. has a large supply of wells that have been drilled but are yet to be completed. The NEB worries that these wells could be completed once gas prices rise, and therefore quickly cause supply to spike, hurting Canadian producers.

In addition, the U.S. Energy Information Administration (EIA) on 7 June predicted that the domestic natural gas production is expected to soon surpass domestic consumption. The greater concern for Canadian producers could come from EIA projections of the U.S. becoming a net exporter of gas for the first time since the 1950s.

Increases in natural gas prices will surely be less than in 2014 and offset by additional costs as well as tougher competition from the U.S. Despite assurances from NEB officials and private sector analysts, the outlook for Canada’s natural gas industry doesn’t look to good over the next few years.

By Erwin Cifuentes for Oilprice.com

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