According to a recent article in the Financial Post, “Natural gas prices may plunge below $1 on ‘insane’ storage glut not seen in 18 years.” The article is referring to benchmark Canadian gas prices at AECO (in Alberta), but hits on the natural gas prices keep on happening for Canada’s energy industry. Currently, natural gas prices are down by half since the start of the year and we are seeing record lows in rates comparable to gas prices of the 1990s. And, prices could have further to fall.

What is causing the steady dip in natural gas prices? Two culprits: a warmer-than-normal winter and continued high production. The mild winter weather across most of North America has caused demand to plummet and sent storage levels in Alberta to record highs. Typically, the seasonal rhythm of the natural gas markets sees supplies depleted during the winter, clearing space in storage facilities which are then replenished during the summer months.

But, for most weeks during the current heating season, withdrawals have fallen short of the five-year (2011-15) average, while inventories have continued to exceed the five-year average. This combination of full storage, robust supply and softer demand has created a similar situation to the conditions gas prices faced in 2012. The industry avoided a worst-case scenario for prices back then when the low natural gas prices enticed power generators to switch from coal to gas, which helped increase supply. This time around, producers are counting on power demand to once again rescue prices. And, when it comes to supply, natural gas players are hoping that the industry-wide pullback in drilling will reduce supplies enough to keep prices from dipping any lower.

This mild winter weather during the 2015-16 heating season has primarily affected the residential sector which uses natural gas primarily for heating.

For a no-obligation quote or review, contact Onterra Energy Advisors at 1-877-991-5971 or email info@bryentonenergyservices.com