Nat­u­ral gas prices fall into neg­a­tive ter­ri­tory

Ottawa Citizen - - FINANCIAL POST - GEOFFREY MOR­GAN

Pipe­line out­ages and main­te­nance work have caused volatile swings in Al­berta nat­u­ral gas prices, push­ing them into neg­a­tive ter­ri­tory in re­cent days.

Dur­ing the past few weeks, Al­berta’s bench­mark AECO prices have fallen into neg­a­tive ter­ri­tory — mean­ing pro­duc­ers have had to pay cus­tomers to take their gas — on mul­ti­ple days. Data from Gas Al­berta Inc. show AECO prices fell to -7 cents from Oct. 5 through Oct. 9, and were also neg­a­tive on Sept. 25.

“We’ve never seen neg­a­tive prices be­fore this year,” said GMP FirstEn­ergy an­a­lyst Martin King, who has fol­lowed AECO gas prices since 1993.

In re­cent years, prices for nat­u­ral gas by-prod­ucts such as propane have fallen be­low zero, but the com­mod­ity it­self has not fallen into neg­a­tive ter­ri­tory in Al­berta.

On Thurs­day morn­ing, the price of nat­u­ral gas in the prov­ince jumped to $1.81 per gi­ga­joule, but “it could crash again to­mor­row,” King warned. “The volatil­ity has been on­go­ing for quite a few weeks and a lot of it is re­lated, di­rectly and in­di­rectly, to field main­te­nance Tran­sCanada has been do­ing on the Al­berta sys­tem.”

He added that ser­vice has been in­ter­rupted in or­der to com­plete main­te­nance on nat­u­ral gas gath­er­ing and trans­mis­sion pipe­lines.

Tran­sCanada Corp., which owns and op­er­ates the largest nat­u­ral gas gath­er­ing and trans­mis­sion sys­tem in the prov­ince, has been work­ing to ex­pand its sys­tem ahead of new ser­vice agree­ments com­ing into ef­fect on Nov. 1, which marks the be­gin­ning of the win­ter heat­ing sea­son.

“We are very sen­si­tive to these im­pacts as we carry out these nor­mal main­te­nance and con­struc­tion ac­tiv­i­ties,” Tran­sCanada spokesper­son Shawn Howard said in an email.

He said Tran­sCanada has been car­ry­ing out ex­pan­sion work on its sys­tems but has com­mu­ni­cated its plans “early and of­ten” to cus­tomers “to en­sure that we can all min­i­mize the im­pact to pro­duc­tion and nat­u­ral gas flow­ing on our sys­tem.”

Nat­u­ral gas pro­duc­ers, mean­while, have been fill­ing up their stor­age op­tions in Al­berta and else­where in prepa­ra­tion for the win­ter sea­son, when util­i­ties burn more of the com­mod­ity to heat homes across the con­ti­nent.

As a re­sult of the volatil­ity in the Al­berta mar­ket, Kelt Ex­plo­ration Ltd. an­nounced last week it would tem­po­rar­ily shut in 21.4 mil­lion cu­bic feet of daily nat­u­ral gas pro­duc­tion.

It also plans to fur­ther di­ver­sify its mar­ket ex­po­sure be­gin­ning Nov. 1, send­ing more gas to On­tario on Tran­sCanada’s main line, the West Coast and U.S. mar­kets. Kelt did not re­spond to a re­quest for com­ment Thurs­day.

The ex­treme price swings have forced Al­berta pro­duc­ers to make a dif­fi­cult choice be­tween sell­ing their gas for noth­ing, or less than noth­ing, and shut­ting in their wells, Aus­pice Cap­i­tal founder and chief in­vest­ment of­fi­cer Tim Pick­er­ing said.

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