Working natural gas in storage is on the cusp of topping out in Alberta, the Canadian province with the largest capacity.
RBN Energy LLC estimated natural gas inventories reached 449 Bcf on July 1, representing the second-highest figure on record for this point of the year – surpassed only by the 467 Bcf in 2016. This year’s tally puts storage within 31 Bcf of Alberta’s estimated effective capacity of 480 Bcf.
The lofty levels emerged after a mild winter and robust levels of Canadian production over the past 18 months. Output reached records above 18 Bcf/d multiple times last year and again in 2024 as producers ramped up ahead of the pending LNG Canada. The Shell plc-led liquefied natural gas export project in British Columbia is targeting final commissioning this year.
In the meantime, forecasts for above-average heat across July and August could drive robust demand and slow storage injections. But RBN analyst Martin King said Alberta storage is on track to reach its limits “well in advance” of the heating season that begins around Nov. 1 in much of Canada.
“Needless to say, with storage injection options in Alberta becoming limited and gas production in Western Canada remaining relatively robust, this has resulted in a deterioration” of prices, King said.
Indeed, the supply/demand imbalance is battering natural gas spot prices in Western Canada, where on Tuesday NOVA/AECO C averaged $C1.050/GJ and Westcoast Station 2 clocked in at $C1.000, according to NGI data. Both were up on the day, but still trading at roughly half the level of a year earlier.
The ample Alberta supplies are increasingly being exported into the United States, adding to natural gas price competition in the Pacific Northwest. Exports to the Lower 48 recently reached a seasonal high of 7.8 Bcf/d and averaged 7.0 Bcf/d over the first week of July, according to Wood Mackenzie data. That was nearly 2 Bcf/d higher than last year.
Northwest Sumas, for example, fell 6.0 cents on Tuesday to average $1.340/MMBtu. That was well below NGI’s Spot Gas National Avg. of $2.070. Northwest Sumas prices nearly hit the $5.00 level in July last year, NGI’s Daily Historical Data show.
“With exports leaving Western Canada effectively maxed out on existing pipelines,” King said, “competition has been increasing and steadily depressing prices.”
This comes at a time when U.S. production also is strong. It hit all-time highs around 107 Bcf/d earlier this year and is running above 100 Bcf/d most of this summer in anticipation of new LNG facilities along the Gulf Coast later in 2024 and next year.
While the Lower 48 is also forecast to melt under above-average temperatures through the balance of summer, it is coming off a weak winter of its own and inventories are robust. The U.S. Energy Information Administration (EIA) said storage at the end of June was 19% above the five-year average.
“Extreme heat is set to bear down” on the Lower 48 this week and next, “setting fresh cooling demand records and reinforcing chances of near-term higher gas prices,” said EBW Analytics Group’s Eli Rubin, senior analyst. “Still, overflowing storage – including in Canada – and rising natural gas production near four-month highs will likely easily meet medium-term demand for gas.”
Longer term, however, demand for North American LNG is projected to double by the end of this decade. This could justify the strong production. It also could require more output increases to keep pace with demand and still leave room for higher prices later this year and into 2025, Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI.
“We may have too much gas now, but that’s going to change,” Blair said.
EIA this week in its latest Short-Term Energy Outlook forecast a Henry Hub natural gas spot price average of $2.90 for the final six months of 2024, up 80.0 cents from the first half of the year.
“We expect natural gas prices to rise to an average of $3.30 in 2025,” EIA analysts said. “Because of rising prices, we expect dry natural gas production to increase by 2% next year.”
RBN said it expects Western Canadian prices to rise in tandem, approaching the $3.00 level late in the coming winter as heating demand intersects with LNG Canada’s expected calls for gas.
