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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2010

Vol. 15, No. 17 Week of April 25, 2010

North American natural gas under siege

North American natural gas prices are headed downhill as stockpiles build amid sluggish demand and Canadian spot prices are expected to take the brunt.

AJM Petroleum Consultants economist Ralph Glass dropped his 2010 AECO Alberta trading hub price by C$1 per thousand cubic feet to C$4.80 and trimmed Nymex gas futures to US$5 from US$5.75 per thousand cubic feet.

FirstEnergy Capital analyst Martin King forecast that Canadian supplies will peak within two weeks, then start steady erosion.

“With the strong likelihood that there will be little drilling this spring and summer, owing to very weak pricing, there appears to be little to rescue gas supply from another plunge this year,” he said in a report.

Glass said he does not foresee a recovery, either industrial or economic in the United States, which could have a dramatic impact on gas prices during a period of high storage levels.

Nymex prices tumbling

Nymex prices have responded accordingly, tumbling towards US$4 per million British thermal units.

Canadian inventories exited March at about 422 billion cubic feet, up 30 percent from a year ago, while U.S. storage climbed to 1.64 trillion cubic feet, about 11 percent above the five-year average.

The U.S. Energy Information Administration expects Henry Hub spot prices will average US$4.44 per million British thermal units in 2010, a slump of 63 cents from its prediction only a month ago.

“With no further increase from the current 950 natural gas rigs working, EIA expects production to begin to show month-to-month declines beginning in the second quarter,” the EIA said. “However, production is not expected to begin to show year-over-year declines until the first quarter of 2011.”

Early thaw in Canada

Canada is already pointed towards production declines because of an early spring thaw that has enforced road bans on the movement of heavy equipment and slashed the percentage of rigs working in Western Canada to 20 from 65 two months ago.

As if the gas outlook is not dismal enough, AJM warned that Canadian domestic crude oil prices face a similar fate unless there is a concerted effort to open up markets beyond the U.S.

Glass said current oil sands production, along with expansions planned for the next 15 years, will allow Canada to satisfy U.S. demand for the next few decades.

But he warned that crude oil could face the same plight as natural gas as advances in horizontal drilling and fracturing techniques open up tight oil prospects.

He said that could lead to a “North American oversupply and falling prices as we see with natural gas. We simply must start to develop the ability to serve international markets like China, where demand is currently 8.9 million barrels per day and growing.”

—Gary Park






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