Canada: NEB Forecasts Higher Gas Prices

Canadians heating their homes with natural gas can expect to spend slightly more than they did last year, whereas consumers of electricity and heating oil are not likely to notice a sizeable increase, the National Energy Board (NEB) said in its Winter Energy Outlook.

The demand for natural gas or heating oil during Canadian winter months is primarily driven by the weather. Heating demand requirements should be average to below-average, based on normal temperature expectations in most parts of the country, with below-normal temperatures forecast for the West Coast and above-normal temperatures forecast for the East Coast.

Prices are forecast to average between $2.90 – $3.40 per Gigajoule at Intra-Alberta and US$3.25 – $3.75 per million British Thermal Units at Henry Hub, a slight increase from last winter’s prices. At the Dawn hub in Ontario, prices are expected to be comparable to last winter, averaging between US$3.40 – $3.90 per MMBtu.

While the storage inventories of natural gas are expected to be below last year’s record levels, they are still well within the five-year average. Production of natural gas in Canada and the U.S. averaged 70 billion cubic feet per day so far and should remain steady for the next six months. LNG imports are forecast to be modest, averaging 0.5 Bcf per day over the winter.

Canadians relying on heating oil to heat their homes this winter can expect to pay between $1.10 and $1.30 per litre, or about the same as last winter. As the largest heating oil markets are on the east coast, the primary factor affecting heating oil prices is the price of seaborne crude oil (which is expected to be similar to last winter).

Ongoing geopolitical tensions, particularly in the Middle East and North Africa, may impact the supply of crude oil, which could result in price fluctuations. Inventory levels of crude oil and petroleum products in the U.S., Japan and Europe are near 20-year lows. Such low inventories could mean increased price volatility in the event of supply disruptions or refinery outages.

West Texas Intermediate and Brent prices are expected to average between US$90 to US$100 per barrel, and US$100 and US$110 per barrel, respectively. Western Canadian Select is expected to trade at a discount in the range of US$30 to US$40 per barrel relative to WTI over the winter.

Stable crude oil price forecasts and adequate inventories of gasoline both suggest that Canadians will not pay much more than they did last year when filling up at the pump. The retail price for a litre of gasoline in Canada is forecast to average between $1.15 and $1.35.

Alberta and Ontario wholesale electricity prices are forecast to remain close to last year’s winter levels. In Ontario, prices are expected to average between $25 and $35 per megawatt hour. These prices do not include the province’s Global Adjustment which averaged $58 per MW.h in the first nine months of 2013. Prices in Alberta are expected to average between $80 and $90 per MW.h over the winter months. Residential electricity rates increased somewhat in almost all provinces in 2013 and further price increases are scheduled for 2014. The need to replace aging infrastructure and the cost of new generation put upward pressure on electricity prices in Canada.

Propane prices this winter will be at a level similar to last year, ranging from 25 – 35 cents per litre at both Edmonton and Mont Belvieu, Texas, the benchmark propane hubs in Canada and the U.S. The increase in propane prices in comparison to last winter is primarily driven by higher WTI prices this year.

Propane stocks in Canada and the U.S. were close to their historical five-year average at the end of October, as propane production south of the border continues to grow, supported by rising production of liquids-rich shale gas. Although U.S. propane exports are increasing due to the growing U.S. supply and higher overseas propane prices versus the U.S., it seems that propane stocks in North America are adequate to cover the expected incremental winter demand.

[mappress]
LNG World News Staff, December 09, 2013