March 2020 brought about the closest thing to a knock-out punch the energy industry has ever seen.
North America was already on the verge of a pandemic when a dispute between Russia and Saudi Arabia about supply quotas brought the energy market to its knees. By March 18, market uncertainty and the sharp decrease in global demand brought the price of a barrel of crude oil down to US$20.13.
This record-low price of oil was a catastrophic blow to an already struggling Canadian oil & gas industry. It’s estimated that the energy industry reduced capital spending by $7.2 billion in Canada and $18 billion in the United States. Producers had no choice but to cut their budgets and curtail oil production throughout North America. Declining production rates will slowly manifest into a higher energy price, improving cash flow for producers. Unfortunately, this will take time — most likely not until late 2021.
Although the Saudi/Russia price war appears to have been resolved with new production quotas, the pandemic has severely reduced demand for gasoline (the highest valued product in a barrel of oil). The full extent of the downturn is not yet fully understood, as we have yet to see how many companies go bankrupt and how many buildings are not being lit or air conditioned this summer.
What Does This Mean for Your Property?
Until the end of October, we forecast that Gas Alberta Energy’s (GAE) natural gas price for Alberta will be less than C$2.00 per gigajoule.
After October, we anticipate prices to sit around $2.00 per gigajoule, because prices during the winter are dependent on weather, production declines, and natural gas storage levels (fortunately, we expect that Alberta will have ample storage inventories to get through a normal winter). However, it is still very early to fully determine winter price expectations.