Right products, wrong market access

Although the demand for natural gas is high in many places in the world and Canada has plenty of it, the future for Canadian gas producers does not appear to be particularly bright. Ian McInnes investigates.

Recently, the Calgary Herald reported that 2012 could see Canadian natural gas producers shutting down batteries unless the unseasonably warm weather takes a much, much colder turn. The newspaper said that according to FirstEnergy Capital Corp November 2011 was a record breaker in terms of the largest inventory rise in the area’s history with 9.4bnft3 going into storage when usually the heating season sees major withdrawals. FirstEnergy’s analyst Martin King told reporters that low natural gas prices will have little chance of recovery by the spring of 2012 if storage levels remain high. “The likelihood of full storage well ahead of the end of the 2012 injection season and a lack of significant export opportunities to the United States may create extremes of price weaknesses for AECO (spot price for natural gas) and widespread production shut-ins during 2012,” King told the Herald. King went on to say that between March to October 2011, there had been a staggering 311bnft3 cumulative gain in natural gas storage in Western Canada and that prices had plummeted some 23% during 2011 to a recent low of CAD2.82/GJ with futures suffering too.

Although producers will have their production hedged it is little surprise that natural gas production in Canada is falling, especially with little sign of demand from the US. The only options open for Canada to go in are to continue to cut production, get the LNG export facilities built as soon as possible (by yesterday would be good), try to use more natural gas for industry and power generation, and hope that the weather gets colder so domestic heating consumers turn up the heat.
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