- Natural gas prices unlikely to rise until additional export capacity is available -

Global crude oil prices should remain relatively stable in 2024 but prices for Canadian producers are expected to rise once the Trans Mountain Expansion (TMX) pipeline project starts operating later this year, according to the latest forecast from Deloitte Canada's Resource Evaluation and Advisory (REA) group. The continuation of significant output cuts by major international oil producers along with slower demand are seen as the main factors insulating global prices from volatility.

"Recent announcements by OPEC+ members that they will maintain their production cuts until at least the end of June suggest oil markets will remain stable in the coming months," says Andrew Botterill, national Oil, Gas & Chemicals leader at Deloitte Canada. "Even with these cuts, global oil supplies have continued to meet demand, despite several ongoing geopolitical tensions, helping to stabilize oil markets."

Nevertheless, Botterill says Deloitte expects the price for Western Canadian Select (WCS) will increase as the differential with West Texas Intermediate (WTI) narrows when the TMX begins calling on Canadian producers for line fill. He notes that several oil sands producers have already said they plan to increase their drilling activities and capital spending in anticipation of the startup of the pipeline, which will boost Canadian crude oil exports to markets outside the United States.

Canada's natural gas producers are also expected to increase their export capacity in the coming years as new liquified natural gas (LNG) facilities come on line. Coupled with rising LNG exports by the United States, this could help boost North American natural gas prices, which have remained below expectations this winter due to seasonably warm weather.

"There's some optimism in the Canadian oil and gas sector this year, but that doesn't mean there won't be some volatility as the system adapts to its new capacity," says Botterill.

One issue that could have a significant impact on the sector is deepening concern about limited water supply due to drought conditions in some parts of Western Canada. Deloitte notes that Canada's oil and gas production base has a concentrated need for fresh water, but some regulators are already restricting access to water because of persistent drought conditions last year and lower-than-average snowpack in the mountains this winter.

"Companies will need to adapt their strategies to cope with added pressures on water supplies they use in their operations," says Botterill. "We know that won't be easy, but it's the right move to make, for them and for the surrounding communities."

SOURCE: Deloitte Canada