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The bank lists two natural gas-focused producers, ARC Resources Ltd. and Seven Generations Energy Ltd., among its “top ideas” for 2021. The bank also has Canadian Natural Resources Ltd., which is both the largest oil producer in the country and the second largest gas producer, among its top picks for 2021.
Stifel FirstEnergy estimates capital spending by Canadian natural gas companies to increase by 10 per cent in 2021, with potential for larger increases from ConocoPhillips and Canadian Natural.
Scotiabank expects a slight uptick in natural gas prices next year with the Henry Hub U.S. benchmark expected to average US$2.70 per mcf in 2021, up 27 per cent from an average of US$2.12 per mcf in 2020.
In Alberta, where much of the natural gas in Canada is produced, the AECO benchmark price is expected to average roughly 70 U.S. cents per mcf lower than that price (equivalent to $2.56 per mcf in today’s exchange rate), according to Cameron Gingrich, managing partner, markets and strategy at Incorrys Information System, a Calgary-based gas consultancy.
“I think that certainly 2021 is going to be a positive year in our view,” Gingrich said. “We see the AECO basis, instead of that $1.50 horrendous (discount compared to U.S. benchmarks) that we saw in 2019, we see a 70 cent (discount) in 2021.”
Gingrich said the combination of oilsands projects running at full capacity for longer periods, natural gas production in the U.S. continuing to decline and new gas pipeline options out of Western Canada will lead to more capital spending and more drilling for gas in Western Canada.
“I think in our base case that we’d see production in Western Canada grow about 300 million cubic feet per day,” said Gingrich, adding that improved prices will help producers that have been struggling for years to repair their balance sheets.
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