Deloitte Canada predicts an easing of crude oil prices in early 2022
Natural gas prices expected to remain elevated due to higher demand
Calgary, January 5, 2022 – Prices for crude oil are expected to be softer in the early part of 2022 when compared to the strong 2021 values as a whole. This is expected as a result of growing global supply as investment comes back to the sector, coupled with concerns about the impact a new COVID-19 variant may have on global demand, according to the latest forecast from Deloitte Canada’s Resource Evaluation and Advisory (REA) group. The report says the release of crude oil from several countries’ strategic reserves and plans for increased production by OPEC+ member states should put downward pressure on oil prices in the first quarter of the year, but expects natural gas prices to remain higher amid growing demand and tighter supplies.
“The drop in crude oil prices we started to see in the final weeks of 2021 will likely continue for a while as more supplies flow into the system,” said Andrew Botterill, national Oil, Gas & Chemicals leader at Deloitte Canada. “It’s unusual for strategic reserves to be used to try to lower prices, but with domestic oil production in the United States still below pre-pandemic levels it’s a way that governments can try to moderate the rising cost of petroleum products such as gasoline which has been adding to concerns about inflation.”
The forecast indicates increased Canadian production of crude oil, coupled with additional OPEC+ production has pushed up the differential between WCS prices and those for WTI by almost 200 per cent since November 2020, bringing them closer to historical values. This oil differential is expected to remain wide as long as we continue to see competitive heavy oil production growth from Canada.
Although the report highlights some recent weakening of North American natural gas prices, it says prices are likely to remain elevated over the winter months compared to last year. Meanwhile, in Europe, a lack of supply and declining storage levels have pushed prices there to levels at or close to all-time highs. Growing LNG exports are seen as a major factor driving natural gas demand in the United States, with US Gulf Coast LNG facilities reaching a record feed gas demand level of 11.2 Bcf/d in November. The IEA reports that the United States is expected to become the largest natural gas exporter in the world this year, ahead of both Australia and Qatar, as it continues to expand its liquification capacity.
“The growth in US liquification capacity is continuing at a rapid pace, with already approved projects expected to nearly triple the current capacity of 11.4 billion cubic feet per day, along with several more projects waiting for regulatory approval,” added Botterill. “This is in contrast to US crude oil producers who have been hesitant to invest in boosting their production levels because of uncertainty about demand growth for oil and the pressure to meet CO2 emission reduction targets.”
Deloitte’s latest forecast also includes an assessment of the impact of decarbonization on the Canadian oil and gas sector, pointing out that oil and gas companies are uniquely positioned to contribute more than any other to carbon reduction. This will require considerable investments in infrastructure projects to store carbon, expand hydrogen use, and develop biofuels. This will take both public- and private-sector support, and governments at all levels will need to find ways to mitigate investor risk.
“Many companies in the sector have the capital and resources to make important investments to fund decarbonization projects, as well as the technical and commercial experience to develop large, complex engineering projects,” said Botterill. “It’s important that governments and investors build on the momentum already created by the oil and gas sector if Canada is going to meet its commitment to carbon neutrality by 2050.”
For Deloitte’s complete oil and gas price forecast and its decarbonization assessment, visit our website.
Deloitte provides audit and assurance, consulting, financial advisory, risk advisory, tax, and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and service to address clients’ most complex business challenges. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Our global Purpose is making an impact that matters. At Deloitte Canada, that translates into building a better future by accelerating and expanding access to knowledge. We believe we can achieve this Purpose by living our shared values to lead the way, serve with integrity, take care of each other, foster inclusion, and collaborate for measurable impact.
Canada, and the world is turning to electricity as the main source of energy to power our future. The Government of Canada has put forward regulations to help achieve net-zero carbon emissions for our grid by 2035.