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U.S. key to gas prices Investment dealer Peters & Co. predicts soft prices until supply and demand in U.S. balance Gary Park For Petroleum News
North American natural gas prices are likely to remain soft through 2009 and be under pressure until there is a “material change in U.S. domestic supply or demand,” said a new report by Calgary-based investment dealer Peters & Co.
The brokerage is forecasting a drop in demand of 1.125 trillion cubic feet in the January-November period, with supply falling by 625 billion cubic feet, because of weakened economics as the industry restrains its spending.
However, once the economy picks up again and industrial demand rebuilds, prices should start to rebound, the report said.
“While spot natural gas prices are currently depressed and will likely remain so for the remainder of the winter, there is some hope that equilibrium between supply and demand will begin to develop over the summer, with our forecast that supply declines will catch up with demand shortfalls by the beginning of the 2009-10 withdrawal season,” Peters & Co. said.
The firm said that during the current sales year, gas futures have averaged US$5.37 per million British thermal units, with only December contracts edging above US$6.
Spot deals at the AECO hub in Alberta have averaged about C$5.69 per thousand cubic feet, with summer pricing at C$5.73 and 2009-10 winter pricing at C$7.44.
Canadian production dropping Canadian production is predicted to drop by 700 million cubic feet per day this year and another 400 million cubic feet per day in 2010, driven by natural decline rates of about 21 percent a year, steep initial declines in production rates of about 60 percent, and a sharp drop in the number of new wells.
The report said the number of new wells in the U.S. should drop about 15 percent from current levels, which are already off 23 percent from last summer because of poor commodity prices and tight budgets.
Based on those numbers, Peters & Co., anticipates supply could taper by 2.5 bcf per day by year-end 2009, or 370 bcf in the January-October period.
It said the wildcard could be the number of new wells that are drilled, but not completed and tied into pipelines this year, noting that a backlog of wells has strongly offset declines in Canadian output over the last two years, easing the rate of supply contraction.
The report said that if the same situation exists in the U.S. “the pace at which supply declines could obviously be tempered. … In addition, in periods of low prices, operators generally revert to more recompletion activity in existing well bores, which could also bolster supply.”
Peters & Co. estimates spending in the Western Canada Sedimentary basin this year will be limited to C$15 billion, but should rise 10 percent in 2010, while sticking to its forecast of 14,500 wells in the basin this year.
PSAC expects wells down 19% The Petroleum Services Association of Canada is less optimistic, setting its new target for all of Canada at 13,500 wells, 19.4 percent from its initial forecast in November, 21 percent from the final tally for 2008 and 46 percent from the record 25,000 wells in 2005.
PSAC President Roger Soucy said the scaling back is the result of a rapid decline into recession that has seen a deterioration in oil and gas prices.
As a result, PSAC has dropped its commodity price forecasts for 2009 to US$50 per barrel for WTI crude from US$85 in November and to C$5.50 per thousand cubic feet for AECO gas from C$7.75.
“In my estimation the pendulum has swung from boom to bust,” Soucy said.
The provincial breakdown points to 8,455 wells in Alberta, off 27 percent from 2008; 905 wells in British Columbia, a decline of 7 percent; and 3,805 wells in Saskatchewan, down 5 percent.
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