Disappearances of Canadian benchmarks will influence future oil and gas forecasts and evaluations
CALGARY, ALBERTA (April 1, 2014) – Deloitte’s Resource Evaluation & Advisory group released its current Canadian domestic oil and gas price forecast today, noting recent increases in Henry Hub natural gas futures for 2014 as high as US$4.94/Mcf. Deloitte’s Andrew Botterill, Senior Manager Resource Evaluation & Advisory, attributes the increases to above-normal draws on U.S. natural gas suppliers brought on by the much talked about polar vortex and low temperatures across North America this winter. Increased short-term prices, coupled with the decline of the Canadian dollar, have seen Canadian gas trading at a premium and driving strong short-term cash flows on the north side of the border.
“The increase in 2014 Henry Hub futures has been remarkable,” said Mr. Botterill. “But just as remarkable is how little the futures market has moved for 2015 and beyond. The market recognizes that these shortages are short-term, and that over-supply of natural gas is still a reality. Even though Canadian producers are enjoying this boost – made even better by the lower Canadian dollar – the reality is that long-term gas prices are likely to remain soft.”
Also significant for the Canadian oil and gas sector, says Mr. Botterill, is the disappearance of steadfast Canadian benchmarks such as Cromer Medium, Shell Edmonton Par, and others, as companies elect not to publish the prices paid for Canadian oil and gas at the refinery gate. The Edmonton Par benchmark, traditionally comprised of prices from Imperial Oil, Shell and Suncor (previously Petro Canada), may be the next to go. Shell and Suncor no longer publish their prices. If Imperial follows suit, the Edmonton Par benchmark will be gone.
“Whatever the reasons,” said Mr. Botterill, “the industry and the public no longer have quite the same access to information on market prices for various Canadian crude qualities. That makes forecasting and evaluation more difficult and decreases transparency.”
Deloitte’s March 31, 2014 forecast shows WTI oil at US$95.00/bbl for 2014, decreasing to US$90/bbl for 2015 and eventually leveling out at US$85.00/bbl by 2018. Deloitte continues to forecast a US$5.00/bbl differential between WTI and Edmonton par that will decrease to US$2.00/bbl over the long term to match pipeline tariffs between the two markets.
With respect to natural gas, Deloitte’s forecast shows natural gas at an Alberta AECO real price of C$4.30/Mcf in 2014, rising to $C4.20/Mcf for 2015 and up to C$5.95/Mcf by 2024. Deloitte’s NYMEX real price is forecast at US$4.30/Mcf throughout 2014, rising to US$4.25/Mcf for 2015 and up to US$5.80/Mcf by 2024.
For Deloitte’s complete oil and gas price forecast dated March 31, 2014, visit www.ajmdeloitte.ca/price-forecasts.html.