Natural gas continues its downward spiral
Goodbye cautious optimism. As the impact of a warm winter, record storage levels and slack demand begins to register on corporate balance sheets, market watchers are taking an increasingly dim view of natural gas in the short term.
Kurt Hallead, co-head of global energy research at RBC Capital Markets, this morning slashed his outlook for natural gas for 2012 from $3.75 to $2.50 per million BTU, and to $3.75 from $4.75 per million BTU for 2013.
He sees AECO prices sliding to $2.20 and $3.50 for 2012 and 2013, respectively. “We expect natural gas fundamentals to remain challenged in 2012 and through most of 2013, as inventories remain significantly above average and reach record levels of 4+ [trillion cubic feet] this fall,” a revised outlook says, describing the U.S. market.
In Alberta, inventories are already 64 per cent full, FirstEnergy Capital analyst Martin King noted this week, just eight days into the injection season. He forecasts prices bottoming out this summer at $1.16 per thousand cubic feet, before rising to $1.64/mcf and then $2.78 in 2013.
The revisions provide an interesting backdrop to tonight’s televised election debate. Recall that the Alberta government’s 2012 budget estimate predicted gas prices would average $3.11 per gigajoule through this year before falling to $3 in 2013. Remember, too, that every 10 cent drop in price costs the treasury $28 million in foregone revenue.
To some, the competitive pressures facing the natural gas business in Western Canada are well known. But as shale gas continues to erode Alberta’s traditional share of the U.S. export market – exports fell 13 per cent in 2011, according to the province – the real shocker will come if party leaders acknowledge the pain in tonight’s debate.