GMP Reduces Near-Term Gas Price Forecast
Investment bank GMP FirstEnergy, in a research note released March 29, reduced its near-term forecasts for North American natural gas prices but said prospects for a “supply famine” in global gas markets and increased optimism about future Canadian LNG developments could support improved pricing over the longer term.
For the balance of 2018, GMP projects the western Canadian AECO price to average about C$1.97/’000 ft3, down 11% from its previous forecast, but rising to $2.68/’000 ft3 in 2019, a 9% reduction from its previous estimate. Henry Hub prices, it says, will average US$3.00/mn Btu in 2018, down from a previous forecast of $3.25/mn Btu, but increase in 2019 to $3.25/mn Btu, off from the previous forecast of $3.50/mn Btu.
“Although we have modestly lowered our outlook for North American natural gas prices, we feel that any short-term price pains that might develop in 2018 will be quickly giving way to better pricing times, perhaps as soon as this summer,” GMP said in its forecast. “The US market is facing enormous gas storage injections, demand growth and export growth over the course of 2018. We feel that the market will struggle to refill US storage this year with the result being stronger prices developing this year and into 2019.”
In Canada, short-term price pain could develop if supply continues to build in Alberta due to structural issues surrounding pipeline maintenance and capacity availability. Still, this short-term pain could lay the groundwork for significant upside in 2019 and beyond, especially if Royal Dutch Shell and its partners take a positive FID later this year on the $40bn LNG Canada project in Kitimat, BC.
“The entire Canadian natural gas sector may receive a major sentiment boost in 2018 if LNG Canada proceeds to construction, meaning more supplies, not less, will be needed from western Canada by early in the next decade,” GMP said.