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Posted January 5 2012

2012 Forecast

Low Canadian Gas Prices Continue Due to Over-Supply and Lack of Market

CALGARY - Canadian domestic natural gas prices continue to decline due to a well-supplied North American market and a lack of access to international markets, stated the quarterly price forecast released yesterday by AJM Deloitte. Meanwhile, crude oil prices continue to oscillate on the world's fragile economy as it moves into recovery mode.

"While the economic recovery is starting to drive the world, North America continues to lag behind," said Ralph Glass, AJM Deloitte's Director of Energy Valuation and Operations. "North American energy companies heavily invested in natural gas should be concerned with the continued depressed market for their product. Warm weather across North America through November and December meant withdrawals have been well below normal from prior years, resulting in all-time high U.S, storage levels and low prices."

Internationally, with the exception of Europe, AJM Deloitte forecasts continued development driven by the use of hydrocarbons. Glass indicated "the use of crude oil and natural gas is not going to go away any time soon."

"We are entering a period where Canada needs to start focusing on markets outside North America in order to take advantage of the higher international prices," added Glass. "Offshore North American economies are where we can anticipate significant growth to occur, as it is likely both Canada and the United States see flat and possibly declining crude oil consumption. In spite of the natural gas over-supply, LNG exports from both countries offer more viable prospects."

AJM Deloitte's December 31, 2011 Canadian domestic forecast predicts an Edmonton real price of C$98.00/bbl for 2012 and continuing for the foreseeable future. The WTI Cushing price is likely to hold at US$100.00/bbl throughout that same time frame. On international commodity markets, AJM Deloitte forecasts the Brent spot price is likely to continue to receive a premium to U.S. prices with the Brent price at US$105.00/bbl for 2012 and continuing through the balance of the forecast. In natural gas, AJM Deloitte forecasts the Alberta AECO average price at C$3.50/Mcf in real terms for 2012, increasing to C$4.00/Mcf in 2013, and growing to C$6.50/Mcf by 2021. NYMEX natural gas for 2012 is forecast at US$3.80/Mcf in real terms, rising to US$7.00/Mcf by 2022.

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