Free Meth­ane (Al­most)

Alberta Oil - - ONEOFF | DEALMAKERS -

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.

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