In a paper released on May 21, 2008 the Canadian Gas Association reports that “Despite recent upward pressure on natural gas prices, additional supplies, particularly from unconventional sources, expanding LNG import capabilities and increasing investment in natural gas storage will keep the market in balance over the longer term.”
According to the report, demand for 2006 was 24 tcf of natural gas (22 tcf in the US and 2.4 tcf in Canada), while supply was 26.6 tcf. Looking forward, demand for natural gas in North America is expected to grow from approximately 26 tcf at present to around 30 tcf by 2020. Demand from residential, commercial and industrial is expected to grow at approximately 1% per year, power generation as a source of growth is estimated to grow at 2.5% per year while the oil sands are said to be single largest source of industrial natural gas demand (0.35 tcf in 2006 and expected to double by the year 2020). With reserve to production ratios remaining stable and even indicating slight growth in the near term, the Canadian Gas Association is of the opinion that there is an abundant supply of natural gas in North America (North America has proven gas reserves of 282 tcf), with declines in conventional sources of supply being made up by increases in unconventional supplies. In the long run, natural gas supplies are expected to last 80 years with taking into account sources of liquefied natural gas or “newer supplies such as gas from waste or methane hydrates.”
While many industry observers claim that conventional gas supplies from the Western Canada Sedimentary Basin (WCSB) have reached a plateau, estimates of supply from unconventional sources of gas from the Mackenzie Delta and Alaska, could provide over 12 tcf of annual North American supply by the year 2020.
The Canadian Gas Association explains current natural gas prices to be the result of high oil prices. They write “Currently, strong oil prices are likely having a knock-on impact in natural gas markets. This is due in part to the substitution possible between certain oil based products and natural gas, particularly for some industrial, heating and power generation applications combined with market Psychology.” On a historical basis, natural gas prices oscillate between “residual fuel oil and heating oil prices on a per unit of heat content (mmbtu) basis” but with oil hitting oil time highs (topping S$133/barrel) significant upward pressure is being exerted on natural gas prices. The report mentions a survey of recent long term pricing outlooks (which predates recent price movements in 2008) for natural gas that indicated the average nominal price expectations of around $7.50/mmbtu in the near term through 2012, moving up to just over $11.00/mmbtu by the year 2020.
The price of natural gas closed at $11.56/mmbtu on the Nymex.
Click here to read the report in its entirety (Courtesy: Canadian Gas Association)
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