Deloitte Canada forecasts lower natural gas prices to continue this year

Calgary, April 5, 2023 – North American natural gas prices, which dropped significantly during the first quarter of this year, are expected to remain lower through most of 2023, according to the latest forecast from Deloitte Canada’s Resource Evaluation and Advisory (REA) group, "Energy M&A spotlight: Buy with strategy, sell with purpose". High storage levels and increased production in both Canada and the United States have created an imbalance between supply and demand that is putting downward pressure on prices.

“While many European countries significantly increased their natural gas storage levels in anticipation of a harsh winter, milder weather has left them with higher-than-normal supplies,” says Andrew Botterill, national Oil, Gas & Chemicals leader at Deloitte Canada. “The North American market is also oversupplied right now, so until that changes, we’re not expecting a return to the elevated price levels we saw in 2022.”

Unlike natural gas, oil prices have stabilized in the first quarter of this year and are likely to remain stable throughout the spring according to Deloitte’s price forecast. However, a recent announcement by OPEC+ on April 2, may provide upward pressure that we will continue to monitor. This is due in part to increased demand from China, which has reopened its economy after several COVID-19 lockdowns, and steady production by OPEC countries. The Deloitte forecast notes that WCS (Western Canada Select) has seen significant price growth as the differential with WTI (West Texas Intermediate) has narrowed from more than US$30 per barrel in November 2022 to about US$15 per barrel in March 2023.

“There’s been increased demand for Canadian oil, in part because releases from the US strategic reserve have ended and partly because declining natural gas prices have improved the economics of refining heavier crude,” says Botterill.

In a separate report on global merger and acquisition (M&A) activity in the oil and gas sector, Deloitte states M&A spending in the final quarter of 2022 was just $20 billion, about 40-per-cent lower than the five-year average for that quarter. With lower debt and record cash flows, sellers were in a better position to resist selling at the lower prices buyers were willing to pay.

The report predicts that natural gas supply and liquified natural gas assets will be the focus of industry transactions this year as countries try to mitigate energy security concerns and rising energy prices caused by geopolitical tension, including the war in Ukraine, and look for strategic investments in the cleaner energy space. Deloitte anticipates companies will be pushed to consolidate in the coming years to achieve operational excellence in decarbonization, increase automation and improve operational efficiencies.

For Deloitte’s complete oil and gas price forecast and its most recent oil and gas M&A report, visit our website.

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