Canadian gas prices could plunge below $1 per thousand cubic feet after March as a lukewarm winter and record gas storage conspire to create prices down.
AECO, the Alberta benchmark natural gas prices, stood at $1.24 per mcf Wednesday, its minimum in 18 years, as gas storage exceeded five-year average. AECO prices last fell below $1 on June 30, 1995, Bloomberg data shows.
“With an excessive amount of 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 some months,” Martin King, analyst at FirstCapital Energy Corp. said in a report. “Such prices can also be required to force some wellhead shut-ins.”
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A quantity of information mill already curbing output. Encana Corp., a major gas producer, said hello has reduced its output estimate to as low as 1,300 million cubic feet each day this season from 1,635 million cubic feet in 2015. Storm Resources Ltd. cut production by around 2,700 barrels of oil equivalent per day in November and December, blaming low gas prices in British Columbia that averaged 88 cents per gigajoule.
The quantity of active natural gas rigs stood at 63 in January, compared to 207 during 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 gas storage increased to levels not seen since 1998.
“There is definitely an outside chance that the net cumulative withdrawal of gas from Alberta storage might be close to zero this heating season, an unprecedented event within the history of United states gas storage,” King said inside a note to clients.
On Wednesday, Dundee Capital Markets cut its AECO forecast by 25 % this year to $1.80 per mcf.
Canadian natural gas costs are falling together 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 in the medium term due to increased United states industrial gas demand, growing Mexican exports and U.S. LNG offtake, the short-term storage overhang is expected to 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 sail recently, however it will not be enough to soak up a record 2.4 trillion cubic feet of gas storage – Half greater than its five-year average.
As United states gas producers mothball gas rigs, production across the continent could fall by eight billion cubic feet each day this year, National Bank Financial estimates.
“Current fundamentals aren’t likely sustainable and we have visibility towards potential for a material re-set of supply/demand and pricing within the next six to 12 months,” said Brian Milne, analyst at National Bank.
yhussain@nationalpost.com
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