Deloitte Canada sees continued natural gas price volatility
Deloitte’s Canadian division (Deloitte Canada) said July 6 high storage levels in Europe, reduced global LNG demand and higher production in the US will combine with expected higher-than-usual maintenance activity in western Canada this summer, contributing to continued price volatility.
In its latest Energy, oil, and gas price forecast, Deloitte Canada’s Resource Evaluation and Advisory (REA) group says lower global demand and higher North American production levels have already created volatile Canadian natural gas prices this year, and increased maintenance activity this summer will likely make the problem worse.
“Last summer, natural gas prices in parts of Alberta and British Columbia fell to zero or below on several occasions due in part to outages along the pipeline system servicing those areas,” said Andrew Botterill, National Energy & Chemicals Leader at Deloitte Canada. “We will probably see something similar this year with the additional outages that are planned.”
Capacity outages on TC Energy’s system north of James River, which accommodates volumes from the Deep Basin in Alberta and the Montney in BC, are forecast to hover just under 3% over July, August and September this year, compared to a peak outage of 2.5% in August 2022.
“Throughout August 2022, prices cratered to zero several times, not all of which can be attributed to outages on this pipeline section, but it certainly was a contributing factor,” Deloitte’s report notes. “With increased outages planned for this summer, it is likely that these same trends will continue or worsen.”
Deloitte forecasts the AECO price in Alberta – based on historical differentials to Henry Hub and future contracts traded on the NGX in Calgary – to average C$2.35/’000 ft3 this year, down sharply from a 2022 average of C$5.36/’000 ft3.
In a spotlight on electrification in Alberta released as part of its forecast, Deloitte Canada notes that coal-to-gas conversion is already a major trend in the Alberta power market, with gas contributing up to 80% of power generation this spring against less than 10% for coal.
But because Alberta is an “energy only” market, in which suppliers are paid for electricity supplied rather than capacity, volatility in electricity prices has increased, Botterill said.
“This has created additional risk for oil and gas producer cash flows as power costs become a bigger element of operating costs,” he said. “As a result, some producers are entering into hedging agreements or investing in power generation operations to try and mitigate that volatility.”