The last quarter was unusually volatile for Canadian and international gas and liquids prices and exchange rates. Overlapping factors ranged from maintenance on the NGTL gas system in Alberta, European war and energy crises, recession concerns, and economic uncertainty associated with rapidly rising short- and long-term interest rates and foreign exchange volatility.
Oil and Liquids
GLJ made no significant changes to the long-term nominal values. Near-term values were adjusted to reflect the recent movement of WTI price from over $100/bbl to $80/bbl. Our previous deck included this correction, but for a slightly later time frame. There are no significant adjustments to differentials between benchmarks from the previous forecast.
North American and International Gas
Henry Hub continues to reflect the strong pull of Europe for all LNG molecules that can be obtained. HH pricing in the short-term was increased. Also, as GLJ sees strong demand for long-term LNG prospects, we have increased our long-term real price on Henry Hub. AECO, and related gas benchmarks in Canada continue to illustrate the access-to-market limitations of western Canadian gas, and discounts to Henry Hub are wide and are expected to continue. There are no significant adjustments to basis differentials between benchmarks in previous forecasts. Dutch TTF, NPB, and Japanese gas were forecast to be extremely elevated for several years prior to returning to closer-to-historical norms.
Experienced users of the GLJ price deck will note the use of 0% inflation in 2023 in this deck. Although the CPI value in 2023 is very likely to be higher, this price forecast is essentially already in 2023 dollars. Users of this deck in economic evaluations should ensure that operating costs and capital costs are forecast as best estimates in 2023 dollars. GLJ chose to forecast this deck in this way to ensure that future nominal prices did not deviate too far from strip prices and reflected our expectations for long-term prices. For this price forecast, GLJ assumes that longer-term inflation will be restored to the central bank target of 2%. Long-term inflation tends, both CPI and in the energy space, are likely to come into the forefront in the future.
The $USD has been exceptionally strong lately, presumably due to a rush to “safety” during potential European banking and credit crises, and in the specific case of Japan, diverging fiscal policies. GLJ has forecast the CAD vs. USD differential lower in the long-term than previous forecasts, but assumes a recovery from current levels over time, as has been observed in previous financial crises.