Long, cold winter a boon for Canadian gas producers

Prices reached record highs at start of 2014

OTTAWA, April 2, 2014 /CNW/ - The exceptionally long and cold winter has helped drive up natural gas prices in North America and improved the financial outlook for Canadian gas producers, according to The Conference Board of Canada's Canadian Industrial Outlook: Canada's Gas Extraction Industry.

"Natural gas prices briefly reached record highs at the start of the year, which will help industry revenues this year," said Michael Burt, Director, Industrial Economic Trends. "However, some of the heat in the natural gas markets will ease as the weather gets warmer."

HIGHLIGHTS

• In 2013, natural gas prices increased for the first time since 2008. However, prices will moderate this summer.
• A recovery in Canadian natural gas production is unlikely in the near term.
• The lines between oil and gas industries are blurring as gas companies target higher-value natural gas liquids and ultra-light oil formations.

Higher North American gas prices will support a return to profitability for the industry. Following two years of losses, the industry is expected to post a pre-tax profit of approximately $220 million in 2014.

After several years of weak pricing, natural gas prices have improved significantly over the past six months, thanks mainly to the cold winter. In the last quarter of 2013, the natural gas benchmark in Alberta averaged US$3.4 per million British thermal units (mmbtu), a 40 per cent increase from the $2.4 per mmbtu in 2012. Prices are expected to experience a correction this summer, and although they will remain higher than in recent years, they are not expected to return to the peaks they reached in the mid-2000s.

Despite the improvements in prices, a recovery in Canadian natural gas production is unlikely in the short term. Growth in natural gas production in the United States continues to be the main detractor from the Canadian natural gas extraction industry. The development and proliferation of new extraction technologies has reversed the decline in U.S. gas production and U.S. imports have fallen.

Canadian producers are increasingly looking toward Asian markets as an important source of growth, but are constrained by a lack of infrastructure. Drilling activity in Canada will remain weak, and output is expected to decline steadily over the forecast period.

SOURCE: Conference Board of Canada

Yvonne Squires, Media Relations, Tel.: [phone] ext. 221
E-mail: [email protected]