“Global demand for oil and gas continues to outstrip supply as economies emerge from the effects of the COVID-19 pandemic and countries, particularly in Europe, seek alternatives to Russian oil and gas following the invasion of Ukraine,” said Andrew Botterill, National Leader, Oil, Gas & Chemicals, Deloitte Canada. “That said, considerable economic uncertainty remains as rising inflation and higher interest rates are affecting consumer confidence, leading businesses to become increasingly cautious about their investment and expansion plans.”
Botterill says higher demand kept WTI prices for oil at an average of about US$110/bbl in the second quarter of 2022, but notes demand could drop as consumers look for ways to save money, including possibly postponing or reducing vacation travel during the usually busy summer months. On the other hand, North American natural gas prices, which in the last quarter reached values not seen for more than a decade, look set to stay strong because of increased LNG exports by the United States to feed European energy needs.
Canadian heavy crude prices have shown wider differentials to the WTI benchmark, largely due to increased heavy oil supply releases from the US strategic reserves and a drop in demand from Asian refiners. That differential reached US$20.80/bbl in June, the widest margin in seven months. Deloitte says the margin could widen further throughout the summer as additional sour crude is released from US strategic reserves in a bid to keep oil prices in check.
Within the accompanying forecast commentary, Deloitte notes that energy security has become a major issue for countries around the world, with significant implications for global efforts to decarbonize. Many countries, especially those who rely heavily on Russian oil and gas, are looking to find alternative sources of energy, increasing the risk that capital previously committed to decarbonization projects may now be diverted to build new LNG facilities, pipelines, and other oil and gas projects.
“While the Canadian energy industry continues to examine potential investments to help Canada reach its decarbonization goals, it’s clear the size, scale and degree of risk of the projects needed are beyond the scope of any individual company,” said Botterill. “Fortunately, the federal government is showing indications it recognizes its role as a catalyst for investment to support the transition to a greener economy.”
Deloitte says Canadian natural gas has tremendous potential as a transitional fuel in the short to medium term. It could also be a replacement for Russian gas supplies, but this may require the expedited construction of LNG facilities in Atlantic Canada and pipelines to deliver the gas.
For Deloitte’s complete oil and gas price forecast and its analysis of the new realities of energy security and the consequences for decarbonization, visit our website.
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