february 2015 ceri commodity report — natural gas · jan feb mar apr may jun jul aug sep oct nov...

Relevant • Independent • Objective

The question that needs to be answered is how bad could it get? One method of answering this question is to examine the daily well licences issued by the Alberta Energy Regulator (AER) and attempt to extrapolate industry activity into the future by utilizing historical trends. Figure 1 details the monthly “gas” well licences issued for the years 2011 to 2014 and the first two months of 2015. The red line shows the licensing activity for the year 2012, a year where the average market price for natural gas was approximately $2.50/MMBtu (CDN). The purple line shows the licensing activity for 2014, a year where the average market price for natural gas climbed to above $3.50/MMBtu (CDN). Activity in the form of new gas well licences for 2015 appears to be responding in a similar fashion as market prices in January averaged $3.00/MMBtu, followed by $2.50/MMBtu in February. Extrapolating from these two months following the average trend for the previous four years would suggest total gas well licences will reach the 1,000 level or just under the 2012 total of 1,183 licences for Alberta. Figure 1: Monthly Natural Gas Well Licences Issued in Alberta

Following this same procedure for the licencing of oil wells paints a much different picture (Figure 2). In February 2014, the WTI price for light crude was approximately $102/barrel (US) and peaked in July at $104/barrel (US) before starting to decline, reaching $49/barrel (US) in February 2015. The tailing off in oil drilling licences (purple line) after July followed the price decline; however, not as steep. The real eye opener happened between December 2014 and February 2015, new oil well licences dropped by 75 percent.

0

50

100

150

200

250

300

0

50

100

150

200

250

300

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011 Gas Licences 2012 Gas Licences

2013 Gas Licences 2014 Gas Licences

Estimate Jan/Feb 2015 Gas Licences

February 2015

CERI Commodity Report — Natural Gas

Are We Standing on the Edge of the Energy Abyss? Pete Howard At one point on Wednesday, March 18, 2015, the West Texas Intermediate (WTI) oil price fell to below $42.50 (US) per barrel. At the same time, US stock piles of crude surpassed 450 million barrels, the highest level in over 80 years. Now there is growing concern in the market that the physical storage at Cushing, Oklahoma could hit capacity levels that would leave producers with no market for excess production. This type of event in the past has hit hard Western Canadian producers whose prices are set against the WTI benchmark (East Coast producers receive the Brent benchmark price). On that same day in March, ConocoPhillips announced a 7 percent reduction in its workforce. This type of announcement is now becoming commonplace in Calgary, the heart of the oil and gas industry in Canada. The layoffs at Conoco follows hundreds of job losses announced by Talisman, Nexen, Shell, and others. Industry layoffs since the start of the year now number in the thousands. Producers are cutting capital budgets for the fall drilling season and calling upon the service sector to reduce day drilling charges in an effort to maintain some activity levels. Capital budgets could be cut by 30 percent and that, coupled with a 20 percent reduction in costs from the service sector, will lead to more layoffs. History has shown that as gas prices fall producers tend to move towards more oil related activity. However, as oil and gas prices are low the reduction in capital spending should affect both sides of the industry.

CERI Commodity Report – Natural Gas Editor-in-Chief: Dinara Millington ([email protected]) Contents Featured Article ................................................................................. 1 Natural Gas Prices.............................................................................. 3 Weather ............................................................................................ 5 Consumption and Production............................................................. 7 Transportation................................................................................... 9 Storage .............................................................................................. 11 Liquefied Natural Gas ........................................................................ 14 Drilling Activity .................................................................................. 16


Extrapolating from January/February and assuming the same average monthly trend as for the previous four years would suggest total oil well licences for 2015 would reach the 1,200 level or approximately a 60 percent reduction from 2014. Into The Abyss We Go Again?

Figure 2: Monthly Oil Well Licences Issued in Alberta (does not include bitumen well licences)

0

100

200

300

400

500

0

100

200

300

400

500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011 Oil Licences 2012 Oil Licences

2013 Oil Licences 2014 Oil Licences

Estimate Jan/Feb 2015 Oil Licences


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february 2015 ceri commodity report — natural gas · jan feb mar apr may jun jul aug sep oct nov...

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