Natural gas prices poised to jump in 2025, predicts new report

After another year of slumped natural gas markets across North America, a new report says 2025 could bring a jump in prices. 

An oil and gas price forecasting report published by Deloitte on Dec. 31 said an increased demand for Canadian natural gas coupled with growing LNG shipping capacity could translate into higher prices in the new year. 

That demand will serve to round out an oversupply of natural gas that Canada saw throughout 2024, said Andrew Botterill, a partner with Deloitte and a co-author of the report, leading to a healthier market balance. 

And with the new LNG Canada export terminal in B.C. expected to come online mid-2025, Botterill said the industry is in a good position to meet some of those growing needs. 

"Structurally, the natural gas market for 2025 just looks so much better," said Botterill. 

"I think companies are really teeing their budgets, being prepared for that opportunity to develop more of their natural gas opportunities." 

What's driving demand? 

Botterill said the first main factor driving new demand for Canadian natural gas are markets in the U.S. and Mexico, which will have more LNG projects coming online in the next couple of years. 

"That means we're going to have even more LNG exports off North America, so more opportunity for natural gas markets to be developed," said Botterill, citing the integrated nature of the Canada-U.S.-Mexico market. 

Continued growth in the use of natural gas for electricity generation across the country is another factor driving demand, said Botterill. 

According to Deloitte's report, natural gas demand for electricity generation has grown by an average of five per cent per year over the last decade — and with electricity needs on the rise across the country, Botterill expects the trend to continue. 

Low natural gas prices throughout 2024 were in part propelled by increased drilling activity in anticipation of more LNG shipping opportunities, but according to the report, that imbalance is expected to correct in the upcoming year. 

Increased demand has led to investment spike

Projections in changes for demand of Canadian natural gas have in turn changed investor behaviour, said Botterill, leading to a spike in financing over the last year in particular. 

According to Deloitte's report, 2024 saw investments in the oil and gas sector reach their highest levels since 2017, with $12.8 billion invested in the second quarter of 2024 alone.  

New investment has been primarily directed toward developing new energy projects, infrastructure and technologies, according to the report — the largest of those on the natural gas side being the LNG Canada export terminal. 

"The fact that we're going to be able to export LNG from within Canada, I think it's a big game changer. And it means that we are going to be able to be more competitive," said Botterill. 

He added that the impacts of the new LNG terminal are already being seen in price predictions for 2025. 

"That price of $2.15 that we have forecasted for an Alberta natural gas price, that's almost double what the natural gas price was last year," he said. 

A relatively stable period in the oil sector over the past 12 to 18 months has also served to buoy further confidence in the wider industry, said Botterill.

"[Oil companies] were able to consider larger budgets and just a little bit more investment certainty that they were able to deploy more of their cash," he said. 

Impact of Trump tariffs uncertain

In terms of how U.S. president-elect Donald Trump's potential border tariffs could belay the projected rise in gas prices, Botterill said the industry is cautious, but waiting for more concrete answers. 

"There's certainly a lot of unknowns in that right now and I don't think too many of the markets are necessarily pricing in anything quite yet, but I think there's certainly a lot of trepidation."

Questions remain around how the sanctions could impact export volumes and production levels further down the line, said Botterill, but he added that they would likely lead to higher prices for consumers and slow future investment. 

"If we see a really aggressive tariff coming to the sector … some of that optimism on the investment might diminish and companies are going to be more worried about just ensuring that their balance sheets stay strong." 

Trump has previously threatened to impose a 25 per cent levy on all Canadian imports the day he takes office, Jan. 20.