Winter’s Chills Heat Up Canada Natural Gas Prices – But Will It Last?

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Export Infrastructure for Canada Natural Gas Makes Its Price Gains More Tenuous

The new year’s start with record-breaking cold across North America is putting push-pull pressures on natural gas supplies and prices. In the face of it all, while some observers wonder if a shortage might push prices higher by spring, others say what’s possible for U.S. producers is unlikely for Canada natural gas.

The immediate effect of the Arctic blasts and dangerously cold wind chills was chaos. Mount Washington, New Hampshire was the second coldest place on earth on Jan. 6, with wind chills registering minus 73 degrees Celsius (minus 100 degrees Fahrenheit). Northern Ontario and Quebec saw thermometers dip to minus 50 degrees Celsius (minus 58 degrees Fahrenheit). Airports were closed, flights delayed, and regions that may have escaped blizzard conditions faced flooding.

But the cold snap may be the answer to Canada natural gas producers’ prayers. After several comparatively mild winters, gas prices had been depressed, with supply continuing to grow without an accompanying increase in demand.

In recent weeks, the plummeting temperatures caused Alberta’s natural gas well “freeze-offs,” where water and condensation in the pipes froze. Limited supply at a time when more heat was demanded for homes and businesses caused prices to jump in response.

AECO, Alberta’s natural gas price benchmark, has skyrocketed from $2.50 per thousand cubic feet at Christmas to $10.71 as the first week of the new year came to a close. In fact, the first week of January, according to Natural Gas Intelligence (NGI), marked the highest spot price in natural gas it had ever recorded.

Ontario-based Active Business Services, an energy management firm that helps business customers hedge their risks in natural gas procurement, points out that the futures market is currently focusing on the gas prices and supplies compared to five-year averages. While weather conditions have moderated, and the forecasts are highly uncertain, colder weather is anticipated again by many weather forecasters as January comes to a close.

Meanwhile, NGI cited the U.S. Energy Information Administration data showing an increasing deficit in the inventory of total working gas in underground storage, on a week-to-week and year-on-five-year basis.

Jacob Meisel, chief weather analyst at Bespoke Weather, told CNBC that with stockpiles below the five-year average, the issue was whether that would be turned around by spring or turn into a gas shortage – which could drive prices higher.

But that is more likely to happen in the U.S. than in Canada.

The U.S. has a better export infrastructure for natural gas than Canadian natural gas market enjoys, due to LNG export terminals and pipelines to Mexico. That puts it in a better position, according to analysts, to sustain price increases that come with the cold spells being experienced.

Further, as Active Business Services adds, the recent cold snap was going to have a material effect on Canadian natural gas because its prices were so low to begin with – and further, are depressed compared to the U.S. market prices because of its lack of the export infrastructure.

In fact, Alberta’s natural gas prices actually dropped into negative territory during the fall because the shortage of pipeline space prevented producers from moving their gas into storage.

 

 

 

 

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