Economic recovery will drive energy prices, demand

Canada Winter Energy Outlook forecasts crude oil prices, natural gas rates, and electricity supply for the heating season, noting surplus inventories, weak demand, and growing renewables like wind power amid tentative economic recovery.

Energy prices this winter will be driven in large part by the strength of global economic recovery the National Energy Board (NEB) said in its annual Winter Outlook.

"With renewed signs of economic recovery in Canada and around the world, and with the winter heating season under way, energy demand is expected to grow," said NEB Chair Gaétan Caron. "But with surplus inventories for all our energy commodities, we are well positioned to handle any increased demand."

Canadians can expect to see crude oil prices between (US)$75 and (US)$80 per barrel over the winter, though summer energy prices could trend lower. With the price of home heating oil closely tracking the price of crude, average Canadian heating oil prices this winter are expected to be higher than last year, when crude averaged about (US)$46 per barrel.

With robust inventories of natural gas going into the winter heating season, Canadians can expect to see prices between (US)$4 and (US)$5.50 per million British thermal units over the winter period. Sustained cold weather or a strong economic recovery could push prices above that range but, on average, Canadians who heat their homes with natural gas will see cheaper heating costs this winter.

Weak demand and high storage inventories have kept natural gas prices low. As a result of low prices, drilling activity in Canada and the U.S. is roughly half the levels of previous years. This will lead to a small reduction in supply over the winter, with Alberta prices poised to soar if recovery is strong, which should help rebalance the market later in 2010.

The supply situation is no different when it comes to electricity in Canada. As a result of reduced demand and spare capacity we will see low wholesale prices and adequate supply for electricity this winter, though Ontario hydro hikes are here to stay. It is clear that the economic slowdown had an impact on electricity trade, which is down nearly 30 per cent below the record levels set one year ago.

Canada's energy supply mix continues to diversify. Concerns over greenhouse gas emissions, as well as the high cost of energy in recent years, have helped to stimulate investment in new and cleaner technology. Natural gas-fired generation in Canada is expected to reach nearly 15,000 megawatts by year-end, a 50 per cent increase since 2007. In addition, wind power generation is expected to surpass 3,700 megawatts by year-end, more than double the capacity in 2007.

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