Natural gas producers in Alberta expect that a colder winter, followed by a new Canadian LNG export project coming online in 2025, will see prices head upwards after a forgettable summer — and that may mean higher heating bills for consumers.
Storage capacity was full coming out of last winter, which drew prices down through 2024. That created an oversupply situation, with some producers even curtailing some of their gas production.
This week, the price of natural gas in Alberta was around $1.30 per gigajoule. Last week it was as low as 30 cents. In September, it was only 10 cents.
Gas prices are about double where they were around the end of last winter, said Andrew Botterill, energy and resources partner with Deloitte Canada.
“As we start looking at our furnaces kicking on and heating our homes here in Canada, we should expect to pay probably higher natural gas prices to heat our homes,” he said.
“Unfortunately, we could see some tough heating bills to come, especially compared to last year.”
Those on open contracts should expect them to go up over the next few months, Botterill said.
Producers optimistic about future
At the beginning of this past winter, natural gas production was high and storage levels in Western Canada were at record levels.
The mild winter resulted in much less demand for natural gas to heat buildings. Even a brief stretch of intense, bitterly cold weather in January did little to lower storage levels.
Now, producers are hopeful of improved pricing.
JP Lachance, CEO of Peyto Exploration and Development, says his company uses hedging to avoid problems with market volatility, securing future revenues by forward planning prices, sometimes several years in advance.
And like many companies, Peyto has also curtailed some of its gas production during the low price environment, saving the resource for another day when prices are in better shape.
Lachance says as well as a boost from the upcoming winter season there’s also real excitement in the sector about what’s on the horizon in the form of LNG Canada, a project expected to be ready in mid-2025 which will allow Western Canadian producers access to international markets in Asia via B.C., boosting prices in the process.
“It’s good for the province, because royalties are based on those prices, it’s good for business for people to be working and this LNG Canada coming on will be constructive to the market long-term,” he said.
Martin King, RBN Energy’s managing director of North American energy market analysis, says it’s definitely been a tough year with Alberta natural gas prices on a downward slide from May through till September.
He says the demand just wasn’t there, with somewhere around 5% of gas production shut-in as a result.
King says prices bounced up last week and dropped again just as quickly this week. He says by historic standards it’s still a low price.
“I don’t think these prices are going to stick around,” he said. “We are going into the winter now, just a few weeks away and markets bounce back at the start of winter in terms of pricing,” said King.
King says most producers can get by at $1.70 per gigajoule. JP Lachance prefers a price of around $3.50, in an ideal world.
“It’s not clear if we’re going to bounce back that far or that fast,” said King.
But King says most producers are able to weather weak prices these days. He says most have little debt, lower costs than in the past and more financial stability.
“The majority of the industry can certainly weather these prices for quite a while,” he said.
King says ultimately everything is dependent on winter temperatures.
Another warm winter means not a lot of gas coming out of storage and a glut of gas still in storage at the end of the winter, recreating this year’s scenario.
He says LNG Canada will take many months to reach full capacity next year and its benefits might end up being hampered if Alberta sees another warm winter.