Canadian Gas Industry Faces Another Year Of Low Prices And Declining Market Share

Industry revenues expected to decline by more than 39 per cent in 2015

OTTAWA, March 17, 2015 /CNW/ - The outlook for the Canadian gas extraction industry is expected to remain weak over the next couple of years as high inventory levels and low prices weigh on the industry, according to the latest edition of The Conference Board of Canada's Canadian Industrial Outlook: Canada's Gas Extraction Industry.

HIGHLIGHTS

• Revenues in Canada's gas extraction industry are expected to decline by 39.4 per cent this year.
• Natural gas prices are expected to remain weak through 2016.
• Rapid production growth in the U.S. northeast has begun to squeeze Canadian producers out of both the U.S. market and Ontario market.

"The industry's prospects looked promising after the exceptionally cold winter of 2013-14 led to a sharp increase in demand but, unfortunately, the surge in the resulting production over the summer and a milder start to this winter have helped restock inventories and push prices back down," said Michael Shaw, Economist, The Conference Board of Canada.

"Combined with the continued strength in U.S. production, Canadian gas producers can look forward to another year of low prices and declining market share weighing on revenues and profitability."

North American natural gas prices have dropped from above $5 per thousand cubic feet (mcf) in the first quarter of 2014 to under $3 per mcf early in 2015. With gas inventories expected to be close to record levels heading into next year's home heating season, gas prices in North America are expected to remain weak through 2016.

Canadian gas producers are also feeling the effects of the weaker oil prices. Since the energy equivalent price of oil and gas began to diverge, gas producers have been targeting formations that produce a high quantity of natural gas liquids priced closer to oil. Unfortunately, with oil prices dropping by 50 per cent in just a few months, the price of these liquids has begun to tumble.

The low gas prices and a sharp drop in production, led by a fall in exports to the U.S., are driving down industry revenues to their lowest levels since 1998. The gas extraction industry is expected to generate only $10.2 billion in revenue this year, down from $16.8 billion in 2014.

One bright spot for the industry is a temporary reprieve from cost pressures. With the outlook for the oil industry waning, the gas producers will feel some relief on competition for labour and materials, providing some support to the industry's profitability. As a result, for the first time in years, the gas extraction industry is set to outperform the oil industry.           

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SOURCE Conference Board of Canada