Alberta Chapter Update:

CIRI Alberta hosted a luncheon on September 20, 2016 (Commodity Outlook – Putting Together the Pieces) with Michael Loewen, Commodities Strategist for Scotiabank GBM’s Commodity Research Department.

The Scotia price deck is:                  2017     2018     2019

WTI $US/bbl                                       60         65         70

NYMEX $US/mcf                            3.30      3.60      3.75

Loewen noted that the price of oil adjusted for inflation is below 1982 levels ($US 62/bbl in real terms 35 years ago) and that the average marginal cost per barrel around the globe is currently approximately $US 55/bbl.

He said that the collapse in exploration and development spending will lead to balanced oil markets in 2017. Spare OPEC capacity will be less than 500,000 bbl/d by late 2017, compared to four mm/bbl/d in 2010, he commented. Although OECD demand growth has been relatively modest, demand in the rest of world continues to climb and now exceeds the OECD number.

Loewen spent a fair amount of time discussing China and India, where economic growth is still relatively buoyant. In China, 54% of the population (740 million people) lives in urban areas and this will increase to 70% (one billion people) in 15 years, he said. Even though manufacturing is slowing, the service sector continues to grow and automobile sales continue to set new records.

U.S. natural gas supplies grew by 27% (six tcf/year) between 2010 and 2015, displacing coal and imports. The warmest winter in 75 years took four bcf/d out of demand in 2015/16, leading to record storage levels. Scotia expects U.S. gas demand to grow significantly in the 2017-2019 period as three bcf/d of new gas-fired power generating capacity comes online.

Loewen admitted that a recession would temper his predictions. His final thought was that 80% of producing basins are flat or declining – growth must come from the remaining 20%.