On May 28, 2008,the National Energy Board (NEB) came out with a report that essentially said that oil and gas prices aren't expected to decline much from current levels in the coming months.
"What happens in world crude oil markets this summer will largely determine the price of gasoline in both Canada and the U.S," says NEB Chair Gaétan Caron.
The report highlights the tight supply/demand situation in the oil market and points to “seasonal demand increases, geopolitical risks to supply, low spare producing capacity and the weakness of the U.S. dollar,” as a basis for their view of high oil prices for the next few months. As a result of high oil prices, the NEB expects gasoline price to also remain high. However,the report points to the fact that U.S gasoline inventory levels reached 15 year highs in the first quarter of 2008 as the reason for gasoline prices not having appreciated as quickly as crude oil prices.
With natural gas prices doubling since last fall, the NEB is of the opinion that prices are expected to range between $US 11-13 per million British thermal units (MMBtu) this summer. The reasons underlying this range of price for natural gas has been pinpointed to “record crude oil prices, lower liquefied natural gas (LNG) imports, declines in Canadian production, a greater volume of gas needed to refill storage and the usual uncertainty of potentially hot summer weather.”
The report points out that due to decreased rates of drilling, gas production in Canada is declining and currently 1 billion cubic feet per day (Bcf/d) lower than last year. However, stronger production in the United States is offsetting lower production in Canada and lower LNG imports. Inventories of natural gas in storage are predicted to be filled to roughly 95% of last year peak of 4.1 trillion cubic feet (Tcf). Hence, the NEB predicts that there will be “a more than adequate supply of natural gas to meet summer demand and to store for the winter heating season.”
As natural gas in storage increases over the summer in Europe, a greater amount of LNG should become available in North America, peaking at an estimated 2.5 Bcf/d in August and Sept. The report expects LNG imports to average 1.9 Bcf/d, (about 27 percent less than last summer) over the summer.
Lastly, the report estimates that provinces and territories should have a commensurate supply of electricity this summer, barring any unforeseen circumstances. However, if natural gas prices continue on their upward trajectory, province and territories could possibly have to deal with higher electricity prices, particularly in regions that have natural gas fired electricity generation, including Ontario and Alberta.
Click here to view the entire 2008 Summer Energy Outlook presentation
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