Canadian natural gas prices could plunge below $1 per thousand cubic feet after March like a lukewarm winter and record gas storage conspire to bring prices down.
AECO, the Alberta benchmark gas prices, stood at $1.24 per mcf Wednesday, its lowest level in 18 years, as gas storage exceeded five-year average. AECO prices last fell below $1 on June 30, 1995, Bloomberg data shows.
“With too much gas in Western Canada, we feel prices will deteriorate further to under C$1.00 per mcf and could well persist near this level for a few months,” Martin King, analyst at FirstCapital Energy Corp. said in a report. “Such prices can also be necessary to force some wellhead shut-ins.”
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A quantity of companies are already curbing output. Encana Corp., a significant natural gas producer, said hello has reduced its output estimate to as low as 1,300 million cubic feet per day this season from 1,635 million cubic feet in 2015. Storm Resources Ltd. cut production by around 2,700 barrels of oil equivalent each day in November and December, blaming low natural gas prices in British Columbia that averaged 88 cents per gigajoule.
The quantity of active gas rigs stood at 63 in January, when compared with 207 throughout the same month in 2015, based on the Canadian Association of Oilwell Drilling Contractors.
FirstEnergy, a Calgary-based energy investment broker, says “insane” record high natural gas storage increased to levels not seen since 1998.
“There is an outside chance that the net cumulative withdrawal of gas from Alberta storage might be negligable this heating season, an unprecedented event within the good reputation for North American gas storage,” King said inside a note to clients.
On Wednesday, Dundee Capital Markets cut its AECO forecast by 25 % this season to $1.80 per mcf.
Canadian natural gas prices are falling in tandem with U.S. Henry Hub benchmark that is at levels last seen in the previous century. The U.S. benchmark was trading at US$1.68 per mcf on Wednesday.
“While we remain constructive within the medium term because of increased United states industrial gas demand, growing Mexican exports and U.S. LNG offtake, the short-term storage overhang is anticipated to help keep prices depressed until the heating season resumes or production tapers,” Dundee analysts wrote in a note to clients.
The first U.S. liquefied gas export ship set sail recently, however it won’t be enough to soak up an archive 2.4 trillion cubic feet of gas storage – 50 per cent greater than its five-year average.
As North American natural gas producers mothball gas rigs, production across the continent could fall by eight billion cubic feet per day this year, National Bank Financial estimates.
“Current fundamentals are not likely sustainable and that we have visibility towards possibility of a fabric re-set of supply/demand and pricing over the next six to 12 months,” said Brian Milne, analyst at National Bank.
yhussain@nationalpost.com
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