North American natural gas prices are expected to remain low through 2023 due to high storage levels and increased production in Canada and the U.S., according to a recent forecast by Deloitte Canada’s Resource Evaluation and Advisory (REA) group.
High levels of natural gas storage in anticipation of a harsh winter leave countries with higher than normal inventories
This oversupply has created an imbalance between supply and demand, putting downward pressure on prices. The national manager of the oil, gas and Chemicals at Deloitte, Andrew Botterill, notes that many European countries increased their natural gas storage levels in anticipation of a harsh winter, but milder weather has left them with higher than normal inventories.
Unlike natural gas, oil prices stabilized in the first quarter of this year and are expected to remain stable through the spring, according to Deloitte’s price forecast.
However, a recent OPEC+ announcement on April 2 could put upward pressure, which Deloitte will continue to monitor. The reopening of the Chinese economy after several COVID-19-related lock-ins and stable production from OPEC countries have increased demand for oil. The report notes that WCS experienced significant price growth as the spread with WTI narrowed, in part due to lower natural gas prices improving the economics of the heavier crude refinery.
Deloitte’s report on global oil and gas merger and acquisition (M&A) activity indicates that M&A spending in the final quarter of 2022 was 40 percent below the five-year average for that quarter. Lower debt and record cash flow allowed sellers to better withstand the lower prices that buyers were willing to pay.
The report predicts that natural gas supply and liquefied natural gas assets will be the focus of industry transactions this year as countries seek to mitigate energy security concerns and rising energy prices caused by geopolitical tensions, including the war in Ukraine, and seek strategic investments in the cleaner energy space.
Deloitte predicts that companies will be driven to consolidate their operations in the coming years to achieve operational excellence in decarbonization, increase automation and improve operational efficiency. The focus on the cleaner energy space and continued demand for oil and natural gas will create an interesting landscape for the energy sector in the coming years.
