Majority of survey respondents see slight improvement in 2017, but business environment will remain cautious at best.
Battered and bruised by over two years of low commodity prices, Canada’s energy industry isn’t expecting a return to the good times before the late 2014 oil price crash anytime soon, according to Oilweek’s 2017 Oil & Gas Industry Outlook Survey.
While there is some expectation of higher oil and gas prices in 2017, there remains a great deal of uncertainty about where the industry is headed as the year unfolds.
Around half of survey respondents expect oil prices to climb to an average US$50–$60/bbl range in 2017. A third expect prices to average $40–$50/bbl.
A little over 50 per cent of respondents expect gas prices to average US$2–$3/mmbtu in 2017. A third of respondents were more optimistic, expecting prices in the $3–$4 range.
Count Rick Grafton, founder and chief executive officer of Grafton Asset Management, among these natural gas optimists.
Grafton told a CFA Society Calgary outlook breakfast in late October those expecting gas prices to remain low could be in for a surprise this winter. “I often hear that commentary: ‘Natural gas prices will never go up—there’s just too much cheap supply,’” said Grafton. “I can remember multiple times in my career that experts told me that prices won’t go back up. And they were always wrong.”
While the headlines have focused on the oil markets, Grafton says gas markets are “the most interesting and underappreciated story—especially since our basin is 75 per cent natural gas.”
He also believes gas prices will rise next year, though he didn’t forecast a specific number.
“Absent a really warm winter, the fundamentals continue to support a strong natural gas price through 2017,” he said.
A Toronto-based fund manager doesn’t share Grafton’s outlook for 2017 gas prices.
While acknowledging at least one forecast for a NYMEX gas price of US$4/mmbtu, Andrew McCreath, president and chief executive officer of Forge First Asset Management, believes North American gas prices will “have a tough time” topping $3 next year.
A colder-than-usual winter has been forecast for much of North America in 2016-17 due to La Niña ocean currents. One of the agencies trying to predict season temperatures is the National Oceanic and Atmospheric Administration (NOAA) of the U.S. Department of Commerce. But as the winter draws closer, each NOAA monthly forecast calls for less frigid temperatures than the forecast issued a month earlier, says McCreath.
While acknowledging the forecasts for the coming winter vary, “I find that, generally speaking, the hype of severe La Niña is diminishing,” he says.
McCreath expects the North American gas glut to worsen with planned increases in takeaway capacity from the Marcellus/Utica shale gas plays flooding regional markets.
“There sure is a heck of a lot of pipe coming on stream over the next two years in the northeast United States,” he says. “And so consequently I think the differential at AECO versus Henry Hub is going to grow over time with the potential of ultimately making a lot of western Canadian gas uneconomic—especially given that LNG is a forgotten dream that I don’t think will ever come back.”
McCreath, who expects strong oil production growth from the Permian oil play in Texas, said Permian oil production also includes large volumes of associated gas, which will add to the gas glut.