Bank Sees Hopeful Glimmer for Canadian Gas

The natural gas market in western Canada in 2018 might not turn out to be the basket case many had predicted, according to a February 26 research note from investment bank GMP FirstEnergy.

Martin King, director, institutional research at GMP FirstEnergy, said in the note that gas prices at the AECO trading hub in Alberta are holding up better than expected, with summer pricing showing modest improvement, at $1.24/’000 ft³ against a $1.10 projection just a few weeks ago.

“The fundamental data that continues to come in is at least suggesting that the AECO summer market might not be quite as dire as feared a few weeks ago,” King said in his Weekly Canadian Natural Gas Supplement. “Still not good, but not quite as apocalyptic as seemed to be the case at the start of the year.”

King identified a few factors working in favour of recently-improved AECO prices:

• gas storage levels in Alberta are lower, although still at historically high levels;
• completion appears to be delayed for the Rover pipeline in the US, which would potentially bring as much as 1.1bn ft³/day of Appalachian gas into the Dawn trading hub in Ontario, a key market for western Canadian producers;
• demand for gas inside Alberta has remained much higher than a year ago, and could remain so throughout 2018; and,
• there are signs that gas-directed drilling is winding down sooner than usual for this time of year.

“Industry discussion continues to focus around reducing gas focused capex for 2018 so supply gains may end up not being as robust as originally feared,” King said.

That leaves pipeline maintenance as one of the few remaining elephants in the gas room in western Canada, especially if access to interruptible transportation into storage is restricted again this year as it was last summer.

“The current maintenance schedule posted by TransCanada for its Eastern Gate (effectively southern Alberta) is indicating heavy maintenance during May, with less intensive work being planned for June and July,” King said. “Not too coincidentally, May AECO forward prices are the weakest in the summer 2018 strip at just $0.99/’000 ft³.”