Confidence high in patch, but gas prices remain low

CALGARY — Approval of Canada’s first LNG export terminal is expected to boost investor confidence in Western Canada’s natural gas sector.

But the LNG Canada project’s ability to provide a new market for natural gas and thus support depressed prices won’t be seen until the facility is built sometime in the middle of the next decade, observers say.

The announcement on Tuesday, coming on the heels of Canada reaching a trilateral trade deal with Mexico and the U.S. on the weekend, lifted the mood in the room at an investment bank’s commodity price forecast breakfast in Calgary.

“It’s excellent news that we can get an announcement of a major project in Canada,” said Dale Dusterhoft, CEO of Trican Well Service. “The impact on the immediate market probably isn’t great, but if we can get this and others built behind it, it’s great for the long-term future.”

Global natural gas demand is expected to increase 45 per cent to 199 trillion cubic feet per day by 2040, according to the Canadian Association of Petroleum Producers, which welcomed news that Canada will be able to export to customers other than those in the United States.

A continued glut of gas in Western Canada and the march of American shale gas into its traditional markets including Eastern Canada convinced analyst Martin King of GMP FirstEnergy to roll back his forecast for a recovery in benchmark Alberta gas prices next year. At the event Tuesday, he said natural gas prices will average $1.57 Cdn per thousand cubic feet in 2019, just two cents higher than this year, and marked down from an earlier prediction of $3 per mcf.

By comparison, New York prices are expected to average $3.35 for the same amount of gas in 2019, up from $3 this year.

Gas traditionally sells for more in New York because it’s closer to major population centres, but the difference has been widening due to pipeline capacity constraints in Alberta and B.C.