NEB sees Canadian natural gas supply continuing to decline

6/9/2016

CALGARY, Alberta -- Canada’s National Energy Board (NEB) has released its Short-term Canadian Natural Gas Deliverability, 2016-2018, report that projects supply and future pricing for Canadian natural gas over the next two years.

Canadian natural gas deliverability, or the projected amount of gas supply, is expected to continue declining over the next year as less is needed to refill storage after last year's warmer-than-average winter. More production coming from the northeastern U.S. (Utica and Marcellus shale gas) will further challenge Canadian output going forward.

The price for North American natural gas, which has been on a downward trend since mid-2014, is expected to decline further this year dipping to $2.50/MMBtu, down from $2.70/MMBtu in 2015. Prices are then expected to gradually trend higher, reaching $3/MMBtu by 2018. These prices are taken from the NEB's mid-range case and represent the Henry Hub reference point in US dollars.

The decline in crude oil and natural gas prices since 2014 has had a profound impact on Canadian gas producers, reducing revenues, and constraining cash flow. Despite significant capital expenditure cuts in 2015, many small- and mid-sized producers are struggling with bank-imposed debt limits while maintaining minimal drilling operations to help slow declines in reserves and production.

While Canada's LNG export picture remains unclear, a final investment decision on one or more of the proposed projects could accelerate pre-positioning by producers and help stimulate activity leading to supply increases.

"Canadian natural gas drilling decreased significantly last year as lower prices, major cuts to capital spending and increased US competition continue to impact the industry. Our mid-range forecast shows modest gas price increases within two years, assuming moderate economic and gas demand growth in North America, as well as weather conditions back in line with seasonal averages," said Shelley Milutinovic, chief economist at the NEB.

The NEB is an independent federal regulator of several parts of Canada's energy industry.