Natural gas storage levels at five-year high

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CALGARY, Jan. 6, 2016 /CNW/ - Oversupply, both oil and gas, continues to dog the market, driving down prices in the face of a warm Canadian winter. Coupled with new political pressures and focus on cleaner energy, the industry is still facing a year of uncertainty and normalization in 2016.

"It was expected the oversupply of oil globally and natural gas in North America would have ended sooner," says Andrew Botterill, Partner, Resource Evaluation & Advisory (REA) group. "We've been talking about lower oil prices for the better part of the year, but with a warm winter looming, natural gas storage has reached a five-year high, which is going to further depress gas prices as well."

While the forecast may sound dreary, Botterill points out there are some avenues available to companies to weather these changes. "Innovation and adaptability will continue to be critical – from technology to business strategy, companies are going to have to start looking inwards for the right solutions."

The REA group's Q4 forecast also notes that a recent political promise to steer away from coal electricity generation in Alberta could have a positive impact for natural gas in the future once the infrastructure is in place. In the short-term, the REA group forecasts a Henry Hub 2016 gas price of $2.40/Mcf US, which is in-line with the futures expectations over the last month, and an AECO forecast for 2016 of $2.45/Mcf CAD, expecting the same Henry Hub to AECO differential of $0.60/Mcf US that has been in-place historically. 

The Q4 forecast took a longer-lead view to the industry, forecasting the oil price to average below $50/bbl US in 2016 and 2017, before starting a slow rise to $80/bbl US by 2022. The Edmonton Light price forecast anticipates an average 2016 price of $51/bbl CAD, keeping in mind a low exchange rate is propping up Canadian oil prices.

Demand for oil has increased this past year, most likely attributed to the drop in prices making consumption more affordable. This trend, however, is not expected to continue into the next year, with the International Energy Agency forecasting a decrease in demand to 1.5 MMbbl/d, down from expectations of 1.8 MMbbl/d earlier in the year.

For Deloitte's complete oil and gas price forecast dated December 31, 2015, visit our website.

About Deloitte
Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte operates in Quebec as Deloitte s.e.n.c.r.l., a Quebec limited liability partnership. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

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