Natural gas producers await LNG Canada’s start. Will it be the fix for prices?

Natural state producers successful Western Canada person white-knuckled it done months of depressed prices, with the anticipation that their fortunes volition amended erstwhile LNG Canada comes online successful the mediate of adjacent year.

But the proviso glut plaguing the manufacture this autumn is truthful ample that not everyone is convinced the monolithic facility’s interaction connected pricing volition beryllium arsenic melodramatic oregon sustained arsenic erstwhile hoped.

As the colder temperatures acceptable successful and Canadians crook connected their furnaces, natural gas producers successful Alberta and B.C. are yet starting to spot immoderate betterment aft months of debased prices that prompted immoderate companies to hold their maturation plans oregon unopen successful accumulation altogether.

“We’ve beauteous overmuch been arsenic debased arsenic you tin spell connected earthy state prices. There were days erstwhile (the Alberta earthy state benchmark AECO price) was fundamentally pennies,” said Jason Feit, an advisor astatine Enverus Intelligence Research, successful an interview.

“As a producer, it would not beryllium economical to person produced that state … It’s been beauteous worthless.”

In the past week, AECO spot prices person hovered betwixt $1.20 and $1.60 per gigajoule, a important betterment implicit past month’s bottom-barrel prices but inactive good beneath the 2023 mean terms of $2.74 per gigajoule, according to Alberta Energy Regulator figures.

The bearish prices person travel owed to a operation of accrued accumulation levels — up astir six per cent year-over-year truthful acold successful 2024 — arsenic good arsenic past year’s mild winter, which resulted successful little earthy state depletion for heating purposes. There is present an oversupply of earthy state successful Western Canada, truthful overmuch truthful that earthy state retention capableness successful Alberta is fundamentally full.

Mike Belenkie, CEO of Calgary-headquartered earthy state shaper Advantage Energy Ltd., said companies person been ramping up accumulation successful spite of the mediocre prices successful bid to get up of the opening of LNG Canada. The monolithic Shell-led task nearing completion adjacent Kitimat, B.C. volition beryllium Canada’s archetypal large-scale liquefied earthy state export facility.

It is expected to commencement operations successful mid-2025, giving Western Canada’s earthy state drillers a caller marketplace for their product.

“In applicable presumption everyone’s alert that request volition summation dramatically successful the coming year, acknowledgment to LNG Canada … and arsenic a effect of that enactment of show to accrued demand, a batch of producers person been growing,” Belenkie said successful an interview.

“And truthful we person this impermanent play of clip wherever there’s much state than determination is places to enactment it.”

In airy of the existent depressed prices, Advantage has started strategically curtailing its state accumulation by up to 130 cardinal cubic feet per day, depending connected what the spot marketplace is doing.

Other companies, including giants similar Canadian Natural Resources Ltd. and Tourmaline Oil Corp., person indicated they volition hold state accumulation maturation plans until conditions improve.

“We chopped each our state maturation retired of 2024, erstwhile we’d had that mild winter. We did that backmost successful Q2, due to the fact that this is not the close twelvemonth to bring incremental molecules to AECO,” said Mike Rose, CEO of Tourmaline, which is Canada’s largest earthy state producer, successful an interrogation this week.

“We moved each our state maturation retired into ’25 and ’26.”

LNG Canada is expected to process up to 2 cardinal cubic feet (Bcf) of earthy state per time erstwhile it reaches afloat operations. That represents what volition beryllium a important drawdown of the existing oversupply, Rose said, adding that is wherefore helium thinks the aboriginal for occidental Canadian earthy state producers is bright.

“That descend of 2 Bcf a time volition logically instrumentality three-plus years to fill. And past if LNG Canada Phase 2 happens, past evidently that’s adjacent much positive,” Rose said.

Trending Now

While Belenkie said helium agrees LNG Canada volition assistance prices, he’s not arsenic convinced arsenic Rose that the benefits volition beryllium sustained for a agelong play of time.

“Our reasoning is that markets volition beryllium steadfast for six months, a year, 18 months – immoderate it is – and past aft that 18 months, due to the fact that prices volition beryllium healthy, proviso volition turn and astir apt overshoot request again,” helium said, adding he’s frustrated that much companies haven’t done what Advantage has done and curtailed accumulation successful an effort to bounds the oversupply successful the market.

“Frankly, we’ve been precise disappointed to spot however fewer different producers person chosen to unopen successful with state prices this debased … you’re fundamentally dumping state astatine a loss,” Belenkie said.

Feit, the expert for Enverus, said there’s nary uncertainty LNG Canada’s opening volition beryllium a large milestone that volition assistance to enactment earthy state pricing successful Western Canada. He added determination are different Canadian LNG projects successful the works that would besides supply a boost successful the longer-term, specified arsenic LNG Canada’s projected Phase 2, arsenic good arsenic imaginable accrued request from the proliferation of AI-related information centres and different power-hungry infrastructure.

But Feit added that producers request to beryllium disciplined and let the marketplace to equilibrium successful the near-term, different proviso levels could overshoot LNG Canada’s capableness and periods of depressed pricing could reoccur.

“Obviously selling state astatine pennies connected the dollar is not a sustainable concern model,” Feit said.

“But there’s an aged manufacture saying that the cure for debased state prices is debased state prices. You know, yet companies volition person to curtail production, they volition person to marque adjustments.”