AJM Petroleum Consultants

AJM Petroleum Consultants

January 05, 2011 12:50 ET

AJM Petroleum Consultants: Canadian Natural Gas Prices Not Likely to Recover in 2011

Strong Canadian dollar, US gas supplies and buy-American policies continue to batter Canadian gas producers

CALGARY, ALBERTA--(Marketwire - Jan. 5, 2011) - Current North American natural gas oversupply issues and the strong Canadian dollar have led Calgary-based AJM Petroleum Consultants to lower their price forecast for Canadian natural gas prices. In their quarterly domestic oil and gas price forecast dated December 31, 2010, AJM has maintained its AECO natural gas price forecast at C$4.10/Mcf for 2011, but has lowered its prediction for 2012 to C$4.50/Mcf from the C$4.70/Mcf anticipated in its prior forecast.

"For Canadian natural gas to remain competitive with US natural gas, our prices have to be lower than the American prices," said AJM economist and Vice President Ralph Glass. "A high Canadian dollar, and an increased supply of natural gas from American shale plays, combined with the US economic recovery strategy to 'keep America working,' is pushing Canadian natural gas out of the US markets. We have to maintain bargain basement prices to keep natural gas moving until we develop viable alternative markets. That will mean a tough year for Canadian natural gas producers."

With the goal of developing alternative gas markets, Apache and EOG submitted a joint application to the National Energy Board (NEB) to export natural gas volumes out of Kitimat, British Columbia, on Canada's West Coast. On the crude oil side, Enbridge has filed its own application with the NEB to construct a pipeline from Alberta to Kitimat. Glass notes that these pipeline applications are critical to the development of alternative markets for western Canadian hydrocarbons and while they may eventually change the Canadian natural gas market, this change is not happening fast enough to correct current imbalances.

"Despite marked price increases for both crude oil and natural gas in the final weeks of 2010," said Glass, "we anticipate the 2011 yearly averages for both commodities will remain relatively unchanged from 2010 actual prices. The continued weakness of the US dollar is prompting commodity traders to turn to crude oil in particular. But with the US economy showing early signs of recovery, the US dollar should strengthen and reduce the speculation that is driving current price premiums."

Outside the decrease on AECO natural gas pricing, AJM's December 31, 2010 oil and gas price forecast remains consistent with its September 30 forecast: NYMEX natural gas is predicted to be US$4.50/Mcf in 2011, with long-term NYMEX price rising to US$6.75/Mcf by 2022. In the near future, AJM anticipates WTI crude oil prices to average US$85.00/bbl for 2011, US$87.50/bbl for 2012 and US$88.00/bbl in 2013. AJM's complete December 31, 2010 Price Forecasts are available for download at www.ajmpc.com. For more about recent speculation and its impact on crude oil prices, visit the AJM blog at www.ajmpc.com/our-perspective/our-blog.html.

AJM Petroleum Consultants, a privately owned Calgary‐based oil and gas consulting firm, has extensive experience in exploration prospect reviews, basin evaluation studies and reserve evaluations including evaluations of the unconventional reserves and resources of tight gas, shale gas, coalbed methane, bitumen and heavy oil. With a staff of more than 55 engineers, geologists and technicians, AJM consults for clients including active oil and gas exploration and production companies, natural gas transmission companies, regulatory bodies, financial houses, banks and investment analysts in Western Canada, North America and around the world. AJM offers regular commentary on issues in the oil and gas industry through our website at www.ajmpc.com/our-perspective.

Contact Information

  • AJM Petroleum Consultants
    Andrea Conway
    Office: 403.648.3269 or Mobile: 403.561.8620