East Coast storage reaches 100%
Cool summer effect driving down prices
CALGARY • A recent surge in natural gas storage in Eastern Canada has made history — marking the first time storage levels there have reached 100% and spelling trouble for producers as a glut of supply threatens to keep the commodity’s price low.
“The big Eastern markets are full,” said Tim Egan, president and CEO of the Canadian Gas Association.
The association released a market update Monday showing that natural gas storage levels in highly populated eastern Canadian hubs have climbed above their previous record levels heading into the winter season — when tem- peratures drop and consumers use natural gas to heat their homes.
“Natural gas storage in Eastern Canada has reached effectively 100% full in the past day or two by our calculations,” FirstEnergy Capital Corp. analyst Martin King wrote in a Monday natural gas research supplement. “This marks the first time that Eastern storage has reached 100% of capacity as far as we can tell, although the last time very high utilization was seen (98%) was in 2007.”
A colder-than-expected winter heating season last year, exacerbated by a deep freeze from the so-called Polar Vortex, drew natural gas storage levels to their lowest in more than three years and contributed to an uptick in the price for natural gas.
This past summer was also cooler than expected, which had an opposite effect on natural gas storage levels.
Consumers used less natural gas than expected to run air conditioning units. As a result, Mr. Egan said, “We were able to fill storage faster than expected over the summer.”
In an interview, Conference Board of Canada economist Michael Shaw described last winter as “an exception” that gave natural gas production companies confidence that the commodity could rebound after years of low prices.
“We were wondering whether this was a recovery,” Mr. Shaw said. “Was the market finally refreshing and getting to a level that was more consistent with drilling costs in the United States and Canada?”
Gas prices have remained persistently near or below US$5 per million Btu since the price of the commodity collapsed in June 2008. At that time, the Henry Hub — the pricing point in the U.S. — natural gas spot price was US$12.69 per million Btu.
The price collapse followed energy companies’ widespread adoption of horizontal drilling combined with multi-stage hydraulic fracturing — or fracking — has unlocked so much natural gas that an abundance of the commodity flooded the North American market, driving down spot prices across the continent.
The recent surge in natural gas storage is a result of production companies drilling more over the winter and summer to capitalize on the upswing in natural gas spot prices, Mr. Shaw said.
AEC O natural gas spot prices, the western Canadian benchmark, approached $16 per gigajoule last winter, but have been trending at or below $4 since June.
“The question last winter was, after we saw storage go way down, was the industry able to replace that?” Mr. Shaw asked. “Over the summer, I think we saw that this could be a sustainable trend and that’s why I think we’ve seen prices really come down in the last little bit.”
“At the same time that prices are showing signs of weakness and storage is rapidly reaching full capacity at some locations, supplies from Western Canada have taken off,” Mr. King wrote. “Natural gas supply from Western Canada is reaching highs not seen since 2011, chalking up an impressive near gain near 1 [billion cubic feet per day] in the past 30 days.”
A spokesperson for Husky Energy Inc. said that the company had been pulling back on its natural gas drilling program as a result of the low price environment. Canada’s largest natural gas production company, Canadian Natural Resources Ltd., declined to comment.