Free Methane (Almost)
FOR ONE FLEETING MOMENT DURING the Fort McMurray wildfires, AECO, Canada’s benchmark natural gas hub, dropped to an intraday low of five cents per mcf. The average price that day was 50 cents per mcf—compared to $4.47 per mcf in 2014. Since surging U.S. output started driving Canadian gas back across the border, domestic gas production and pricing has become increasingly reliant on demand from the oil sands. The wildfires almost ended that demand as oil producers switched off their cogeneration power plants and SAGD furnaces. The fires pushed the AECO price down to the lowest level on record since at least 1985.
Natural gas prices have since bounced back to above $1 per mcf. But analysts say the large amount of gas in storage after the mild winter will keep prices low for the rest of 2016. Some companies will probably cut production later this summer as the North American market is saturated and inventories are almost full.
CNRL, one of Canada’s biggest gas producers, says low gas prices forced it to shut some production, even before the fires began threatening the oil sands. FirstEnergy Capital reportedly told Bloomberg News that drillers, especially those that are unhedged and exposed to spot prices, will have to shut in between 0.6 and 0.8 bcf/d of gas production during the summer and autumn.