Hope of the Horizon: Long-term natural gas prices predicted to increase alongside strong oil prices

Source: AJM Petroleum Consultants

Growth in domestic demand, a shift from natural gas to oil focused drilling, and signs of the development of alternative offshore markets for Canadian natural gas have led Calgary-based AJM Petroleum Consultants to raise their price forecast for longer-term Canadian natural gas prices. In their quarterly domestic oil and gas price forecast dated March 31, 2011, AJM has maintained its AECO natural gas price forecast at C$4.10/Mcf for 2011, but increased its long-term AECO forecast in real dollars to C$6.50/Mcf by 2016. 

"Because natural gas is so cheap to buy right now in North America, it is moving in the direction of being the preferred domestic energy source," said AJM economist and Vice President Ralph Glass. "Add this to the fact that high oil prices are discouraging natural gas drilling and encouraging oil drilling, and a situation is emerging whereby the balance will shift on the oversupply issue that has been plaguing North American gas prices. Based on the prior five year average numbers for withdrawal/injection, by the end of the injection season in October 2011, storage levels will be below the five year maximum. As plans move ahead to develop alternative offshore markets for Canada's natural gas, a new supply paradigm will emerge so that we will see a return to higher longer term natural gas prices." 

While AJM's March 31, 2011 forecast includes an increase in long-term natural gas prices, it also reflects the current increase in crude oil prices. As early as mid-2008, AJM had predicted that by 2016 the world would see prices of US$100.00/bbl for crude oil but recent world events have caused AJM to shift this forecast so that the WTI is now anticipated to linger at US$100.00/bbl in real dollars for the balance of 2011 and beyond. This increase in short-term crude oil price forecasts is based on the unrest in North Africa and the Middle East, along with Japan's anticipated need for energy to aid their rebuilding process. While the average WTI spot price will show minor fluctuations due to global events, AJM anticipates it will average at US$100.00/bbl in both the mid-term and the long-term. 

Stronger numbers in the long-term is a consistent theme across AJM's March 31, 2011 oil and gas price forecast: NYMEX natural gas is predicted to be US$4.50/Mcf in 2011, with long-term NYMEX price rising to US$7.00/Mcf (Real) by 2022. AJM's complete March 31, 2011 Price Forecasts are available for download at www.ajmpc.com. For additional thoughts on Canada's potential role in the world markets, visit the AJM blog at www.ajmpc.com/our-perspective/our-blog.html. 

AJM Petroleum Consultants, a privately owned Calgary-based company, has extensive experience in exploration prospect reviews, basin evaluation studies and reserve evaluations including evaluations of the unconventional reserves and resources of tight gas, shale gas,, coalbed methane, bitumen and heavy oil. With a staff of more than 50 engineers, geologists and technicians, AJM consults for clients including active oil and gas exploration and production companies, natural gas transmission companies, regulatory bodies, financial houses, banks and investment analysts in Western Canada, North America and around the world.



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