Deloitte Canada predicts weak oil and gas market in 2024, but opportunities will persist

Calgary, January 9, 2024 – Continuing cuts in crude oil supply by OPEC+ countries coupled with record-high production in the United States and expectations of softening demand growth have combined to push global oil prices to their lowest levels in more than two years, according to the latest forecast: New avenues opening for the chemical and oil and gas industries, by Deloitte Canada’s Resource Evaluation and Advisory (REA) group. Global natural gas prices also remain lower because of high storage levels and a milder-than-expected winter last year.

“2023 was a year of volatility in oil markets largely caused by rising geopolitical tensions, but unlike previous years, these tensions did not drive up prices as would normally be the case,” says Andrew Botterill, National Oil, Gas & Chemicals leader at Deloitte Canada. “Slowing global growth demand for crude oil and increased U.S. production to compensate for much of the cuts by OPEC+ countries means prices are about where they were in late 2021.”

The Deloitte forecast notes that falling prices for West Texas Intermediate (WTI) widened the differentials with Edmonton Light and Western Canadian Select (WCS) in 2023. This led to increased takeaway pressure for Canadian producers, who responded by significantly increasing crude oil by rail shipments since the summer. Much of this pressure on the U.S. pipeline system should be eased once the Trans Mountain Expansion (TMX) begins operation later this year, which in turn should bring more stability to Canadian price differentials.

Meanwhile, natural gas prices were remarkably steady in 2023, with modest growth in production in both Canada and the United States even as demand was lower than expected. Much of this increased production was the result of associated natural gas from oil wells, particularly in the United States.

“Given the high storage levels in North America and Europe, and with El Niño likely to result in another mild winter, we expect natural gas prices in 2024 to remain very similar to what we saw last year,” says Botterill. “It’s possible however that some cold weather late in the season in Canada, if it arrives, could keep prices from collapsing at the end of the heating season.”

Deloitte’s forecast also continues its ongoing analyses of the impacts of energy transition on the oil and gas industry, this time focusing on new opportunities for the chemical industry. Although its recently released 2024 chemical industry outlook predicts sluggish demand in the near term, Deloitte says the industry’s importance to energy transition will eventually have a major impact on industry growth.

“Despite the weak market as we enter 2024, Canada’s chemical and oil and gas industries still have a lot of opportunities because of our abundant natural resources,” says Botterill. “Going forward, we expect to see governments using a combination of policies, regulations and incentives to try to guide investments that will accelerate Canada’s energy transition while also helping companies diversify and grab a larger share of the emerging energy supply chain.”

Botterill points to Dow Chemical’s recent announcement of an $11.5-billion project to renovate and expand its plant in Fort Saskatchewan, Alberta is an example of the impact incentives can have. The Dow project will benefit from up to $400 million in federal investment credits and up to $1.8 billion in rebates through the Alberta Petrochemicals Incentive Program (APIP). He says such incentives can help companies overcome some of the financial challenges of major projects like these.

For Deloitte’s complete oil and gas price forecast and the full details of its anaylsis of new avenues opening for chemical and oil and gas industries, visit our website.