North American Gas Turns Bearish
The “unrelenting” march of shale gas output growth in North America has forced investment bank GMP FirstEnergy to sharply reduce its natural gas price forecasts for Canada and the US.
In a September 26 research note, Martin King, GMP FirstEnergy’s director of institutional research, said production growth in the US “continues to transfix the market, making the current storage deficits an afterthought and not the price bullish driver we had originally expected.
“With storage deficits set to be erased by the end of the upcoming heating season, prices are likely to remain under pressure, especially as the storage deficits morph into substantial storage surpluses,” King said in the note.
The Canadian price bear, he said, is even bigger: growing US production has dramatically cut into Canadian exports south of the border, and will continue to put added strain on Canadian prices.
For 2018, GMP FirstEnergy has cut its US benchmark gas price forecast by 5% to US$2.85/mn Btu from US$3.00/mn Btu, and its 2019 price forecast by a tenth, to US$2.70/mn Btu from US$3.00/mn Btu.
In Canada, it has reduced the 2018 AECO price by almost a quarter to C$1.55/’000 ft3 from C$2.06/’000 ft3 and the 2019 forecast to C$1.57/’000 ft3 from C$3.00/’000 ft3.
Canadian gas exports to the US in September were at their lowest level in two decades, King said, and with new Marcellus and Utica supplies set to flow on the now-completed Rover and soon-to-be-completed Nexus pipelines, an additional 1.8bn ft3/day of Appalachian gas will soon compete directly with Canadian gas, especially at the Dawn trading hub in southern Ontario.
Prospects for higher prices overseas, however, are dramatically more bullish, King said: his latest forecast for the UK NBP price in 2018 is US$8.30/mn Btu, up from his earlier estimate of US$7.53/mn Btu, while GMP FirstEnergy’s 2019 forecast has risen to US$8.68/mn Btu from US$7.31/mn Btu. And that, he reports, can only be seen as good news for developers of the next wave of global LNG capacity.
“The immense demand surge for LNG by China is showing no signs of slowing and is quickly tightening the noose around the last of the LNG liquefaction capacity that is being added in the medium term,” he said. “With no significant additions to liquefaction capacity until well into the next decade, global LNG supply capacity is potentially looking to be exhausted by 2020 or 2021. This will provide a strong foundation for LNG prices and incentivise high utilisation of US LNG plants, the construction of more, and should provide a nice opening for a final investment decision on LNG Canada in 4Q 2018.”