Prices for Alberta natural gas soar 72%

Rally ‘very, very short-lived’, analyst says

The deep freeze chilling most of North America is providing a boost to beleaguered natural gas producers, but analysts believe the colder temperatures would need to last for months for prices to warm up further.

Between Christmas and New Year, AECO, Alberta’s natural gas price benchmark soared 72 per cent from $2.50 per thousand cubic feet to $4.30 per mcf as “extreme cold” warnings were issued for the entire province — and throughout much of Canada — amid Arctic-like temperatures.

The drop in temperatures in Alberta was so severe that some natural gas wells were frozen shut — a phenomenon industry players call “freezeoffs” — which occur when the water and condensation in a well freezes on its way to the surface. The frozen wells helped limit gas supplies while demand surged.

“The jump we saw in prices, it was impressive to see, but it’s very, very short-lived,” GMP FirstEnergy analyst Martin King said of the recent uptick in AECO spot prices.

Shares in Calgary-based natural gas producers with exposure to AECO also extended gains made last week, with Peyto Exploration and Development Corp. shares up more than four per cent by close on Tuesday to $15.70, Birchcliff Energy Ltd. rising three per cent to $4.54 and Tourmaline Oil Corp. rising just under 2.5 per cent to $23.37 per share.

King said natural gas storage levels in Alberta are still significantly higher than the same period last year. However, increasing volumes of gas being produced in Alberta and around North America will eventually weigh on natural gas prices across the continent.

“It’s going to take a lot of cold for many, many weeks to make a sizable difference in storage levels to put in a better AECO pricing for at least the first half of this year,” King said. “We are so over-stocked on gas right now, it’s crazy.”

The cold snap that blanketed Alberta during the past week has started to thaw, with temperatures in Calgary rising from -20 C to -2 C between Tuesday and Monday.