Stalled west coast LNG projects depress Canadian natural gas prices
U.S. producers enjoy higher prices thanks to increased export options
CALGARY, ALBERTA (October 4, 2017) – A lack of market choice for Canadian natural gas led to increased volatility and depressed prices over the summer, creating a higher-than-usual differential with the price of U.S. natural gas, according to the latest oil and gas price forecast by Deloitte’s Resource Evaluation and Advisory (REA) group. The Deloitte report says this trend is likely to continue as Canadian natural gas becomes increasingly stranded while U.S. producers boost their production to meet a growing export market.
“Canadian producers essentially have only two places to sell their natural gas – Canada or the United States – which puts them at a distinct disadvantage to the U.S. producers who have many more options,” says Andrew Botterill, Partner, REA group. “Not only is the United States increasing its exports to Mexico, it has also seen higher exports of natural gas to other international markets, thanks to the construction of several LNG projects along the U.S. coasts.”
In contrast to the U.S. situation, Botterill notes that many Canadian LNG projects have stalled and as a result, Canadian prices are expected to continue to lag behind those for U.S natural gas. The latest Deloitte forecast expects Henry Hub to be US$3.10/Mcf for the rest of the year and AECO to be C$2.00/Mcf in 2017, resulting in an elevated differential to Henry Hub of US$1.50/Mcf.
The differential in crude oil prices between Canada and the United States also increased over the summer and has remained high, even as severe hurricanes pushed down prices in the U.S. as several refineries and petrochemical plants along the Gulf Coast were forced to close and hundreds of thousands of people were evacuated. Deloitte expects these effects on U.S. prices to be temporary, as refineries come back on line and people begin to return home.
Deloitte forecasts the WCS heavy oil differential could go even higher in the long term as U.S. refineries increase their refining capacity for light oil, although this could be mitigated by any decrease in Venezuelan oil exports to the U.S., which would create an opportunity for oil sands producers to pick up market share. Taking these two factors into account, Deloitte is forecasting WCS to be C$45.50/bbl for the rest of this year and WTI to be US$50.00/bbl.
For Deloitte’s complete oil and gas price forecast dated September 30, 2017, visit our website.
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