Moderate climate and strong production are lowering natural gas prices

Cheap natural gas prices are providing some relief on utility bills as Canadians heat their homes this winter, and prices are expected to remain low through most of this year.

For Western Canada’s natural gas industry, it’s a return to lower commodity prices after a few years of increased profits.

Natural gas sells for about $2.09 per million British thermal units, compared to more than $7.50 in 2022.

At the beginning of this winter, natural gas production was high and storage levels in Western Canada were at record levels. The mild winter has reduced demand for natural gas to heat buildings. Even a short period of extremely cold weather in January did little to reduce stocking levels.

For natural gas producers, profits have taken a hit.

“They’re gritting their teeth, wringing their hands and hoping for the best,” said Martin King, a Calgary-based senior analyst at RBN Energy.

King said the expected completion of Canada’s LNG export terminal in British Columbia in the middle of this year provides a certain level of optimism in the sector, although the impact on prices is difficult to predict.

“This may be enough to change market balances and improve prices,” King said. “But this is an idea that has never been tested, and no one is really quite sure.”

The person is asked questions by journalists.
The mid-January cold blast wasn’t enough to budge natural gas prices, says RBN Energy analyst Martin King. (Kyle Backx/CBC)

In the United States, prices are also low due to warm winter weather and relatively high production levels. Close at LNG export facility Texas is reducing the amount of natural gas that can be shipped to international markets.

Christopher Looney, New York commodities strategist at RBC Capital Markets, said U.S. natural gas prices will have to navigate a tough year ahead as prices are expected to remain low throughout 2024. Looney expects prices to improve in 2025 once the Construction of new LNG facilities.

“I think the producers are definitely looking to next year rather than this year, which continues to be a struggle,” he said.

Natural gas is not a major factor contributing to inflation, but economists say lower commodity prices would help. This creates savings not only for consumers, but also for many other industries, such as the manufacturing sector.

Canadian natural gas prices fell this month by about 25 percent compared to last year.

Natural gas pipes and tanks are visible with a forest in the background.
A natural gas facility operates in northeastern British Columbia. The industry is producing a record level of natural gas in Western Canada. (Kyle Backx/CBC)

“Anything that works to help bring down inflation will be warmly welcomed by the central bank and increases the likelihood that the central bank will cut interest rates sooner rather than later,” said Craig Alexander, former chief economist at Deloitte and TD. Bank.

Natural gas prices can be volatile and are greatly affected by weather conditions, Alexander said. However, given the strong volume of production and high storage levels, he said it would take an extended period of extremely cold temperatures for prices to change significantly.

In Alberta, the provincial government is already facing a decline Resource revenues Compared to previous years due to the decline in oil prices in recent months. Low natural gas prices would make it difficult for the government to unveil a balanced budget next month.

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