Canadian natural gas prices are the latest casualty of Fort McMurray wildfires, falling this week to their lowest level on record.
Alberta’s natural gas demand fell to its lowest level in a year, after oilsands facilities in Fort McMurray were shut down by a raging fire that forced the evacuation of the entire town. Oil producers need natural gas for upgrading and for gas-fired cogeneration plants, among other uses.
As a consequence of lost consumption, tepid export demand, and “grossly overstuffed storage for this time of year,” Canadian natural gas benchmark AECO prices have collapsed in the past few days to less than 50 cents per thousand cubic feet (mcf) per day on Monday, said Martin King, analyst at FirstEnergy Capital Corp.
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“We believe these to be the lowest prices ever recorded for the AECO market in the history of deregulated gas prices in Canada,” King said in a note to clients on Wednesday. AECO spot price was trading at 65 cents on Wednesday, Bloomberg data shows.
Genscape, which tracks energy data, says Alberta gas demand stood at its lowest level since June to 3.2 billion cubic feet (bcf) per day, compared to 4.18 bcf per day in April.
“AECO prices will remain pretty low because production will decline but not extremely so,” said Rick Margolin, analyst at Genscape. “Because of where storage inventory currently sits, injections (production) are going to have to be paced. All of this is going to force AECO to remain cheaper than other sources throughout North America.”
While the fire has certainly played a role in curbing demand, at least four oilsands upgraders were also in the midst of planned shutdowns, which was already weakening consumption.
Two weeks of production outages in the oilsands could see 11 billion cubic feet natural gas pushed into storage, although that is not a significant number in the broad context of North American market, investment firm Raymond James said in a report.
Natural gas “has been pulled into financial market speculations revolving around the tragic Fort McMurray fire,” Raymond James said, noting that rising North American demand in the summer should be able to absorb the inventories.
At the moment, cheap Canadian natural gas is not finding its ways to the United States, but has raised inventory to 428 bcf, close to its capacity of 470 bcf.
Given the rising inventories, producers may have to contemplate shutting in about 800 mcf of production during the summer, FirstEnergy’s King said.
“Even without the fires, Alberta gas storage was going to be effectively full before the end of the summer. At current elevated injection rates, storage capacity could be exhausted by the end of June or early July,” King warned.