AJM Petroleum Consultants

AJM Petroleum Consultants

October 04, 2010 14:26 ET

AJM Petroleum Consultants: Price Forecaster Sees Continued Price Slide for Domestic Natural Gas

CALGARY, ALBERTA--(Marketwire - Oct. 4, 2010) - In its quarterly Canadian domestic oil and gas price forecast dated September 30 2010, Calgary-based AJM Petroleum Consultants predicts further price slides for domestic natural gas, citing four trends that are likely to exacerbate ongoing oversupply challenges facing the upstream natural gas industry in Western Canada. Recent blog on the company's website also examine the impacts of lower natural gas prices – including recent decisions by producers to shut-in production, and the very real possibility that lower prices will lead to negative reserves revisions at year end.

"Over the past year or more, the increase of unconventional natural gas development and the steady decline of conventional gas production led me – and the futures market as a whole – to anticipate a revival of natural gas prices over the next few years," said AJM economist and Vice President Ralph Glass, "It appears now that the realization is setting in for everyone that the revival is not happening and natural gas prices are destined to stay in the US$4 to US$5/mcf range for the foreseeable future."

The four trends that Mr. Glass says are affecting natural gas prices are: 1) the continued decline of Canadian exports to the United States while planned volumes of unconventional natural gas from the Montney formation and Horn River Basin begin entering market; 2) the increased spread between US NYMEX and Canadian AECO prices, which adds to further price erosion for western Canadian gas; 3) the reduction in volumes being seen on the TransCanada mainline system, which leads to increased transport costs that are passed back to producers; and 4) the pipeline expansion taking place in the US.

"Because of the interconnected nature of the trends driving natural gas prices," added Mr. Glass, "any production decline will lead to a subsequent price increase which will disappear as soon as drilling increases. This cycle will continue until Canada does something to address its oversupply issues."

In both his domestic and international price forecast commentary, Mr. Glass points to international markets as a potential solution to Canada's oversupply and price problems. Current low gas prices, combined with questions of supply security, are helping to make natural gas a fuel of choice around the world. Citing numerous examples of increased interest and rising demand in Europe and Southeast Asia's Pacific Rim, Mr. Glass echoes international experts that suggest significant investment is required over the next few years to develop the world's natural gas resources and infrastructure.

AJM has downgraded its AECO natural gas forecast by a dollar to sit at Cdn$3.80/Mcf for the remainder of 2010, rising in real terms to Cdn$6.25/Mcf by 2022. NYMEX natural gas for the balance of 2010 is predicted to be US$4.20/Mcf – a drop of US$0.80 from the June 30 forecast — with long-term NYMEX price rising to US$6.75/Mcf by 2022. Complete forecast tables, commentary and documentation for AJM's September 30, 2010 Price Forecasts are available for download at www.ajmpc.com.

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 technical support staff, 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.

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    Andrea Conway