A recovery in oil prices this month has got the market more bullish with an energy sector recovery, however for natural gas, that bullishness may be premature.
Reserves of natural gas in Canada have now hit the greatest level on record with this season, surpassing levels seen during the previous peak this year. FirstEnergy Capital Corp., an energy investment bank, said that the gap with 2012 has become “widening each day,” signalling lower prices ahead.
It is really a worrying trend, because cold weather has become behind the market, leaving less demand in a market oversupplied with natural gas.
“The very mild weather recently has resulted in overall Canadian gas storage levels having risen previously week to some record high for this time of year,” said Martin King, analyst at FirstEnergy Capital.
Like crude, gas has seen the market flooded with excess supply due to the development of horizontal drilling technology and hydraulically fractured shale. Even though oil prices have spiked this month, mainly due to signs that oversupply in the market is easing, there are no signs that the same is coming for gas.
The situation is much more bleak for Canadian natural gas, especially with the recent announcement that a major liquefied gas project in Oregon was denied a permit last week. The work, the Jordan Cove LNG plant, was seen as a potential outlet for gas produced in the Montney shale region near Dawson Creek, Bc.