Daily GPI / Markets / NGI The Weekly Gas Market Report / Markets / NGI All News Access

Persistent Price Headwinds Forecasted for Canadian NatGas Producers

Even the old mainstay growth customer, Alberta thermal oilsands projects, will let down Canadian natural gas producers, says a fall crop of industry and government forecasts that lean prices will continue to prevail.

Change is overtaking the “gas-intensive” side of bitumen production with “in situ” underground extraction by steam injections, says a review of Canadian gas and oil prospects by Fitch Ratings.

The international credit grading service accepts Canadian 2017-30 consensus oilsands projections that through 2030 “more of the incremental growth during this period is slanted toward gas-intensive in situ techniques than traditional mining.”

But the financial firm also observes that “it is important to note that in situ producers have committed to using solvents to lower steam-oil gas ratios and reduce their greenhouse gas intensity, which should negatively affect natural gas usage on a unit [per-barrel] basis.”

Fitch cited examples of improved efficiency set by two prominent, growing oilsands producers that attended its recent investor meetings on the Canadian fossil fuel industry.

MEG Energy Corp. reported making a 20,000 b/d start on using eMSAGP, short for enhanced Modified Steam and Gas Push1. The technique replaces high-pressure steam with compressed gas to drive bitumen up wells.

Cenovus has embarked on large-scale use of solvents, such as propane and butane, to cut bitumen extraction needs for steam by about 20%. While reducing use of gas-fired boilers, the technique pays a bonus by paring down greenhouse gas emissions penalized by provincial and federal carbon taxation.

Imperial Oil corroborated the Fitch forecast of shrinking gas use in the oilsands by announcing partial replacements of steam with solvents in its next projects: 150,000-b/d Aspen and a 55,000 b/d expansion of the Cold Lake plant.

The new production techniques affect the largest, fastest-growing Canadian industrial gas demand source.

Data tables in the National Energy Board’s current long-range outlook, reflecting standard energy-intensive industry practice to date, show oilsands gas use rising by 55% to 4.8 Bcf/d in 2040 from 3.1 Bcf/d, as bitumen output climbs to 4.5 million b/d day from 2.5 million b/d.

On top of technology innovations, emerging factors liable to shrink the industrial gas use projection by as yet unknown amounts include uncertain oil prices and evolving carbon taxation and methane emissions reduction regimes.

Coupled with persistent surpluses, pipeline capacity limitations and competition from shale gas in the United States, the prospect of industrial demand erosion contributes to a somber Fitch price forecast.

The credit rating agency expects Canadian gas, on its main Alberta and British Columbia pipeline and trading grid, to hover at US$0.75-$1.25/Mcf below an anticipated long-range American Henry Hub average of US$3.25/Mcf.

A similarly grim outlook shows in Canadian industry and government forecasts, generated after temporary but severe low prices blamed on construction and maintenance interruptions of gas traffic across the Alberta and B.C. pipeline grid.

GMP FirstEnergy Securities, a Calgary investment house that specializes in tracking gas, currently forecasts only a two cent increase in the annual average price fetched by western Canadian production to CDN$2.21/Mcf (US$1.77/Mcf) in 2018.

The current 2018 forecast by GLJ Petroleum Consultants, a senior Calgary engineering and economics house, anticipates a stronger still limited recovery, suggesting Canadian gas will hover at US$2.11/mcf.

The Petroleum Services Association of Canada is also cautious, limiting its gas expectations to a 2018 average price of CDN$2.50/Mcf (US$2.00/Mcf).

Alberta’s Department of Finance, which forms its expectations from an international array of analyst and industry sources, is likewise wary. The forecast for the 2017-18 Alberta Reference Price, a monthly weighted average for production for all Canadian and U.S. markets, has been lowered to CDN$2.20 per gigajoule (US$1.85/Mcf), down 24% from CDN$2.90/gigajoule (US$2.44/Mcf) from the provincial budget forecast last spring.

Recent Articles by Gordon Jaremko

Comments powered by Disqus