Whether it was heating your home or filling up your vehicle, Canadians saw gas and oil prices soar to record highs last year. 2023 will not be much different, say experts.
West Texas Intermediate, a benchmark crude oil in the North American Market, is forecast at US$80 a barrel for 2023, states the report released Jan. 9.
“We’re going to see elevated prices across the country. It’s a very expensive time,” Andrew Botterill, Canada’s national leader of energy and chemicals at Deloitte, told Global News.
“We expect to see relatively high oil prices through the year. And, to be honest, natural gas is also a really similar story,” Botterill said.
“Unfortunately, as consumers, it’s probably going to be expensive to heat our houses and fill our tanks.”
Although inflated costs are anticipated across the country, residents in provinces like Alberta and Saskatchewan may notice slightly lower prices due to close proximity to a lot of production facilities, according to Botterill.
How COVID, Ukraine war triggered the price hike
The price of oil has been on the rise for a few years. In 2021, oil jumped 3.4 per cent from the year before, according to the Deloitte report. In 2022, there was a 6.7 per cent hike.
According to Botterill, for the better part of two years during the COVID-19 pandemic, the demand for oil and gas sectors reduced.
“That meant that a lot of oil companies didn’t invest and didn’t put money into new drilling opportunities and bringing new production online,” he said.
With COVID restrictions lifted and life returning to a certain degree of normalcy, demand has risen to where it stood before the pandemic, or even higher, Botterill said.
“We’re seeing most of the world out of the COVID pandemic and demand is up,” he added.
Coupled with the Ukraine conflict, which has no end in sight, prices are anticipated to remain steep, according to Botterill.
“(It has) taken a lot of volumes that came out of Russia, both natural gas and oil, and essentially neutralized them or removed them from the market,” he said.
According to the Deloitte report, the imposed US$60 a barrel price cap on seaborne Russian crude by European countries, in co-ordination with the G7 and Australia, has added to price uncertainty.
Russia, the world’s second-largest oil exporter, has stated that it will not sell to countries that have accepted the cap.
Werner Antweiler, professor of economics at the University of British Columbia’s Sauder School of Business, expects sanctions against Russia to remain in place through 2023, and infers that supply will be “significantly” impacted.
With countries moving away from Russian oil, Antweiler expects to see an “interesting reshuffling of markets.”
“That reshuffling means that a lot of countries are scrambling to get supplies from suppliers that are considered more secure and reliable,” Antweiler told Global News.
Prices to remain 'volatile'
“This rerouting going on will probably have an impact on prices,” Antweiler said.
Prices “will be elevated” and remain “volatile,” he added.
“A lot of things are possible on the global political stage, from tensions in Korea to tensions across the Strait of Taiwan,” said Antweiler.
“All of these things are conceivable, but of course, we don’t know if they will happen or not and so what we need to be prepared for is that we are living in a more volatile world. We need to think and anticipate that there will be significant disruption to the supply of energy coming from this uncertainty that we’re living with in the global world.”
According to Botterill, China’s reopening economy after eased COVID restrictions could have “significant” impact on energy needs in 2023.
“As we see China start to open up their economy, will we see another wave of a need to start to move more investment or move volumes in different directions? I think we might,” he said.
“That’s going to create a whole new slew of supply and demand crunches for sure.”
What about natural gas?
As far as natural gas price hikes go, it is a “really similar story,” said Botterill.
In Canada, natural gas production has been steadily growing since late 2020, according to Deloitte’s report.
“But the higher prices in 2022 have not produced the spike in supply that one might have expected,” the report states.
Now, the lack of momentum in gas drilling and associated production reflects the lack of certainty about future prices, it adds.
The “inflationary pressure” on household heating costs is also likely to continue as significant increases in supply don’t look likely.
“With the continued geopolitical uncertainty, the first quarter of 2023 is likely to be just as volatile as the past few quarters but with the added anxiety of a cold winter in full swing,” according to the report.
Impact on diesel
Like other commodities, diesel is also expected to see high prices in 2023.
“The price of diesel is strategic,” said Dan McTeague, president of Canadians for Affordable Energy.
“It is the fuel that is the global workhorse, and it is going to go much higher,” he said.
Speaking on the Roy Green Show on Sunday, McTeague predicted diesel prices this year to mimic 2022.
“We’re going to see a replay,” he said.
“I think we’re looking at $2.75 a litre this summer for diesel.”
A large reason for these expensive prices is due to very strong demands, according to McTeague.
“Post-COVID, economies are going to pick up. We use diesel for everything, from heating to fertilizer, all the way up to jet fuel,” he said.
There's 'little' Canada can do
Jean-Thomas Bernard, economics professor at the University of Ottawa, doesn’t expect oil or gas prices to go much lower in 2023.
“Oil is a commodity that is traded worldwide. It is the most traded commodity,” he told Global News.
With the price of fuel determined on a global scale, Canada has “little control” of just high how prices can get, according to Bernard.
However, the demand for oil is expected to reduce in the future as Canada aims to help tackle climate change and cut back on the use of fossil fuels, Bernard said.
According to Botterill, while many thought Canada may bring on more energy transitions, companies made the decision to “hoard cash, shore up their balance sheets and make sure they’re financially strong,” to prepare for potential volatility.
“We shouldn’t expect companies to go out and dramatically increase budgets. I think they are investing in things like new technologies. They want to move to lower carbon technologies. They want to help with the carbon capture and sequestration,” he said.