Energy consumers received a double dose of positive news after a pair of reports said oil prices are unlikely to hit triple digits before 2012 and Canada has enough natural gas to keep the lights and thermostats on for more than 100 years.
CIBC World Markets reported Wednesday that world oil prices are unlikely to rise above $85 US over the medium term, while a separate report by the Canadian Society for Unconventional Gas suggests Canada has enough clean-burning natural gas to support decades of growth.
The CIBC forecast predicts crude prices will hover in a range of $80 U.S. per barrel this year, rising to $85 U.S. in 2011, held in check by a slower-than-expected pace of economic recovery in the United States and Europe, said Peter Buchanan, CIBC's chief commodities analyst.
"We're saying oil prices are going to do something they don't normally do, which is stay steady," he said in an interview.
A combination of surplus production capacity in OPEC member countries and lower consumption in the U.S. will prevent a return to the $150 U.S. peak reached in July 2008. Even at lower levels, oil prices are high enough to sustain new investments in production while remaining cheap enough to benefit consumers and the manufacturing sector.
Oil prices -- which have fallen more than $10 since the start of May in the biggest decline in 18 months -- lost 72 cents in New York on Wednesday to close at $75.65 U.S.
"The levels we're seeing now in some sense is the best of both worlds," Buchanan continued. "They're high enough to keep (oil production) projects moving but not so high that it kills the economic recovery."
Buchanan noted that U.S. demand remains some 10% below the 2007 peak, and inventories are continuing to rise near record levels in the world's largest consumer.
The U.S. government's Energy Information Agency on Wednesday said storage levels increased 1.9 million barrels last week, about double the one million barrels the market had been expecting.
Also, the Paris-based Energy Information Agency lowered its projected demand forecast by about 190,000 barrels per day in 2009-10 in response to the European debt crisis and the slower pace of the global economic recovery.
The Gulf of Mexico disaster could eventually lead to higher prices, but the long lead times to develop deepwater projects mean the full effects won't be felt for several more years, Buchanan added.
Deepwater drilling represented 46% of global supply growth over the past decade compared to about nine per cent for Canada's oilsands in the same period.
Buchanan said the growing disconnect between relatively high oil prices and low natural gas, which is traditionally priced on an energy equivalent basis to crude oil, will also help keep a lid on oil prices by encouraging fuel switching.
About a quarter of the U.S. decline in oil demand has been taken up by gas, the report said.
The trend is likely to continue after the Canadian Society for Unconventional Gas on Wednesday said the amount of natural gas resources unlocked by new drilling technology in the past five years equates to a 100-year supply of the cleaner-burning fuel.
The group said gas in both conventional and unconventional sources amounts to 4,000 trillion cubic feet (tcf), with a range of 700 to 1,300 tcf considered recoverable using existing technology, or two to four times more than previously thought.
Mike Dawson, CSUG's president, said those numbers could be considered "conservative" because they don't include Alberta's deeper Devonian shales and only limited contributions from emerging shale areas such as Quebec.
In addition, no attempt was made to quantify the amount of gas contained in methane hydrates in the Arctic, which is thought to dwarf all other conventional and unconventional sources combined.
Previous estimates by the Canadian Gas Potential Committee in 2006 pegged Canada's marketable gas reserves at 367 tcf, about a quarter of CSUG's revised estimate.
Dawson said the big drivers for the change have been new horizontal drilling and multi-stage fracturing techniques that have opened new supply sources such as shale.
The group's report follows a similar assessment by the U.S. Potential Gas Committee, which in 2009 said the Lower 48 states also have about 100 years of gas supply.
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