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Natural Gas |
May, 2009 |
EnCana Corporation's Canadian shallow gas and coalbed methane (CBM) production is close to one billion cubic feet per day in Canada, almost all of it from southern Alberta. In its 2009 capital budget, this regionally dominant producer included US$480 million for shallow gas and CBM. The equivalent figure for 2008 was $680 million, and $885 million in 2007. Further, EnCana spokesman Alan Boras cautions: "We may have to reduce our 2009 capital budget because gas prices are currently below our projected figures."
The biggest culprit in this activity downturn is the price of natural gas. In early April, the Alberta spot gas price stood well below C$4 per thousand cubic feet, while in New York the NYMEX price for May delivery wallowed at US$3.70. That's the bad news. On the plus side, although pegging future natural gas prices is never much better than guesstimating, many analysts foresee a substantial recovery in 2010.
That view is held by Kent Moors, a widely respected political economist at Duquesne University and an energy consultant in Pittsburgh. U.S. demand this year, he told the Arctic Gas Symposium in Calgary in March, has declined about one per cent from 2008, while industrial demand has fallen by four per cent, leading the decline. "I think the worst is over," Moors says. "I would suggest demand destruction in the U.S. will be levelling off by July.
"There will be a mild recovery in mid-2009," the Ohio professor predicts, "and it will extend, increasing rapidly to 2010 and 2011. Our initial estimate is US$8 to $9 per million British thermal unit by the end of 2010, and $12 by the end of 2012." Moors expects the North American demand to flatten by July, then begin to climb over the rest of 2009.
Besides price, Canadian gas producers must compete with burgeoning shale gas production south of the border. During 2008, U.S. onshore gas production may have risen by 13 per cent, and some American gas is expected to sit behind pipe until continental supply and demand balance in 2010. Moors forecasts a 2.6 per cent decline in Canadian exports in 2009.
Global demand for LNG (liquefied natural gas) has not softened as predicted due largely to unexpectedly strong imports by China and India. In addition, Russia and the OPEC nations are retaining growing volumes of gas for their own use. In terms of the financial management of hydrocarbons, Moors says he's seen more changes during the past six months than the previous 30 years, and he predicts the emergence of a game-changing international price for spot gas within five or six years.
During 2009, Moors expects Russia, Iran, Qatar, and other major exporters to take the first steps toward forming an alliance. "We are on the verge of a genuine, international natural gas cartel, whether it will operate anything like the Organization of Petroleum Exporting Countries remains to be seen," he says. Although the Duquesne academic estimates that the cartel will control only 40 per cent of global supply, he thinks it will have a significant impact on natural gas prices.
