Canada’s chief natural gas-producing province braced Thursday for prices to remain weak for another three years.
“The immediate outlook for natural gas prices continues to be mixed, with abundant supplies keeping prices low,” said the 2017-2018 budget presented by Alberta Finance Minister Joe Ceci.
The “shale gale” across the United States, formerly the destination for nearly two-thirds of Alberta production, takes the blame for the forecast long spell of lean years.
“U.S. shale gas production is expected to more than keep pace with demand growth arising from U.S. liquefied natural gas (LNG) exports and retirement of coal-fired electricity plants over the medium term,” Ceci’s budget said.
The finance minister forecasts that the Alberta Reference Price (ARP), a weighted average of all production used to calculate provincial royalties, will rise by C$0.75 per gigajoule (GJ) (US$0.59/MMBtu) over the fiscal year ending March 31, 2018.
But the projected gain starts from a severely low 2016-2017 market bottom of C$2.15/GJ (US$1.70/MMBtu) and only raises 2017-2018 expectations to C$2.90/GJ (US$2.28/MMBtu).
“The ARP...is forecast to remain around there for the following two years, reaching C$3.00/GJ [US$2.36/MMBtu] by 2019-20,” the budget said.
Compared to the 2016-2017 bottom, “The ARP is buoyed by increasing demand from expanding oilsands operations, and petrochemical and electricity generation developments.”
But no hope is raised that the ARP will return to the pre-U.S. shale competition era annual average high of C$7.86/GJ (US$6.20/MMBtu) in 2008. Nor is any imminent Canadian counterpart to U.S. overseas LNG exports foreseen to bail out the Alberta industry.
In the 2017-2018 provincial budget outlook, “Natural gas production trends down due to lower drilling and as exports [to the U.S.] are impacted by expanding U.S. production.”
Alberta gas output is forecast to slip to 11 Bcf/d in 2017-2018, down marginally from 11.6 Bcf/d last year -- but nearly one-third off highs that peaked at 16 Bcf/d before the onset of the shale gale.
The combination of lean prices and shrinking output have pounded Alberta government resource royalty revenues down by 73% to the 2017-2018 estimate of C$3.75 billion (US$2.8 billion) from the 2008-2009 peak of C$14.2 billion (US$10.6 billion). Sinking natural gas royalties led the erosion, dropping by 94% to the 2017-2018 provincial budget expectation of C$455 million (US$341 million) from their pre-U.S. shale competition era stardom as the Alberta government’s top money earner that peaked at C$8.3 billion (US$6.2 billion) in 2005-2006.
A thumbnail sketch of recent energy economics history in Ceci’s new budget said, “Technological advances beginning in 2006 made it possible to access large gas deposits from shale formations, and natural gas prices began to weaken. When global financial markets seized in 2008-2009, leading to a global recession in 2009-2010, natural gas prices -- and government natural gas royalties -- collapsed, and have not recovered.”