Record inventory levels and increased American production will drive revenue in the Canadian gas extraction industry down by 39.4% this year, the Conference Board said in a report released March 17.
Decreased demand due to mild weather, combined with record production over the summer, drove gas stores upward and, in turn, prices downward. The price of natural gas has fallen from more than $5 per thousand cubic square feet (mcf) in Q1 2014 to $3 per mcf a year later. Combined with the sharp drop in oil prices, this will lead to revenue in the gas extraction industry to drop from $16.8 billion in 2014 to $10.2 billion in 2015.
This trend is expected to continue through 2016.
“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 Conference Board economist, industrial forecasting Michael Shaw.
“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.”
Gas stores are expected to grow this year, the board said, as U.S. gas producers amp up production, pushing Canadian producers further out of the game.
“While the increase in U.S. natural gas demand is expected to provide the North American industry with medium-term price support, the ongoing increase in U.S. production means that Canadian natural gas producers will remain the North American swing producers—balancing the markets during periods of excess demand but largely relegated to the sidelines the rest of the time,” the board said in its report.
There is one bright spot for Canada’s gas industry, however.
“With the outlook for the oil industry weakening, the gas extraction industry will feel some relief on the competition for labour and materials, providing at least some support to the industry’s profitability,” the report reads.
“As a result, for the first time in years, the gas extraction industry is set to outperform the oil industry.”
