Meantime, Canada’s Oil and Gas Sector is Expected to be in the Red for 2016
Canada’s oil and gas sector posted a pre-tax loss of more than $7 billion in 2015, according to information from The Conference Board of Canada. While oil prices have recovered in the first quarter of 2016, The Conference Board of Canada expects that the oil and gas sector will post another loss this year.
Canada’s oil and gas sector is expected to post a collective loss of $4 billion in 2016, with a $3 billion loss associated with oil activities, and gas extraction expect to fair better with a loss of $1 billion. Despite the second year in a row of multi-billion dollar losses in the industry, The Conference Board of Canada is forecasting the industry to be back in the black by 2017.
“Canada’s oil producers are in for another tough year but conditions are gradually improving,” said Carlos Murillo, Economist, The Conference Board of Canada. “Next year, a combination of cost-cutting measures, increasing production and slightly higher oil prices should boost industry profits, helping the industry return to the black in 2017.”
The surplus in oil production is expected to shrink and come in line with global demand growth over the next two years. This should lead to crude oil prices increasing starting in 2018, said the group. The Conference Board forecasts WTI prices will average $39 this year, and increase to about $65 per barrel in 2020.
Oil sands production is expected to continue over the course of the group’s forecast, despite the low oil price. A number of projects are expected to come online in the near future, and with project lives of more than 30 years, their operators are basing their decision to continue forward on longer-term outlooks for crude prices.
Natural gas continues to be tied to domestic markets
The Conference Board expects a $1 billion shortfall this year from Canadian natural gas producers, saying that the group does not expect cost cutting measures to keep pace with the drop in revenue. Firmer energy prices and reductions in cost will help the industry regain its ground by 2017 though, according to the forecast.
Canadian natural gas production will continue to be dependent on the health of domestic markets though, said Conference Board. With LNG projects in Canada held up, there is no available outlets for significant amounts of natural gas to international markets.
“The natural gas market is expected to continue to expand, largely driven by LNG trade opportunities. Given the current number of projects under construction in U.S. and Australia, however, the LNG market appears to be well supplied and prospects for Canadian LNG export projects continue to fall behind,” Conference Board said in its report.
The arrival of a global LNG market
The first cargos from Cheniere Energy’s (ticker: LNG) Sabine Pass mark the beginning of a major development in LNG said Melissa Stark, energy managing director and global LNG lead at Accenture. “LNG coming out of the U.S. is probably the single most important thing that will transform the future LNG market. It heralds the arrival of a global market.”
Demand for natural gas from Sabine Pass is bolstering natural gas prices in the U.S., with the terminal receiving more than 35.4 billion cubic feet of natural gas since delivers began on October 23, 2015.
Cheniere’s gas demand so far this year has helped support prices by $0.05-$0.10 per MMBtu, said IAF Advisors Director of Research Kyle Cooper. While volumes now are relatively small, by this time in 2017, Sabine Pass’s total consumption will reach 200 billion cubic feet or more, he said.
