Canada’s largest natural gas producer, Tourmaline Oil Corp., expects the already tight California natural gas market to become more lucrative amid rising demand and limited transport capacity.
“We obviously really like the California market, and we’ve been building our volumes to access that market for almost 10 years now,” CEO Mike Rose said during a call to discuss the Calgary-based company’s second quarter earnings. As a result, “we’re up to almost .5 Bcf/d accessing that market and it’s one of the premium priced markets in all of North America – at times it trades almost at LNG pricing.”
NGI’s Malin forward basis price for winter 2024/2025 delivery averaged $1.696/MMBtu on Monday, while the corresponding PG&E Citygate forward basis price was $2.305.
Tourmaline is a Western Canadian Sedimentary Basin natural gas pure-play. However, it markets the molecules throughout North America.
Vice President Jamie Heard, who oversees capital markets, said on the call that Tourmaline supplies roughly one-fourth of the Northern California natural gas market, where “prices really have strengthened. Even just recently over the last couple weeks we’ve seen it rocket from $2s to $3s on just heat, and the consumption of gas during heat still remains really high…”
He said natural gas “basically is the main service of how they balance their grid after 6 p.m….and when we look at how the state is planned going forward, we also see the data center build there similar to other areas that we also sell gas to…”
Meanwhile, “in addition to data centers, we actually think one of the more interesting aspects of California is how it interconnects with the Mexico LNG buildout,” Heard said.
Mexico has about a dozen liquefied natural gas projects in various stages of development, most of which plan to re-export pipeline gas sourced from the United States.
“Much of the Mexico LNG buildout is Pacific facing – there is interconnection with how those gas flows interact with Southern California and to some extent, Northern California,” Heard said. “We’ve been beginning to add some of our transport into SoCal to have access to both of those markets, and as those [LNG] plants fire up it’s going to have an additional strain in that system which could have definitely increased upside on pricing.
“And from our perspective there’s no view of increased volume into that state from new pipe or expanded pipe.”
As a result, “it’s going to be a very, very tight system that has rewarded Tourmaline with extremely strong gas prices in both winter and summer in years prior,” continued Heard. “And as we look forward to the next five to 10 years we think that could definitely happen again…”
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Reducing AECO Exposure
Tourmaline’s natural gas production averaged 2.54 Bcf/d in 2Q2024, up 10% year/year. The company’s average realized natural gas price during the period was C$3.03 (US$2.18)/Mcf, “significantly higher than the AECO 5A index price of C$1.20/Mcf over the same period, as the company benefited from its multi-year diversification portfolio,” management said.
NGI’s NOVA/AECO C forward basis price for September delivery averaged minus-$1.353 on Monday.
Tourmaline has “reduced both AECO and Station 2 exposure for the second half of ‘24 to approximately 9% of our total natural gas portfolio and that’s actually the lowest it's ever been,” said Rose.
The company now expects full-year 2024 production to average 575,000-585,000 boe/d, down 5,000 boe/d at the midpoint from previous guidance. The revision accounts for selected 3Q2024 well completion deferrals into 4Q2024, “to ultimately shift production into an environment of stronger anticipated winter gas prices,” the company said.
Tourmaline expects to increase its AECO exposure once the LNG Canada liquefaction terminal enters service, “because we do think that will be structurally positive for in-basin pricing here at the two hubs when you pull ultimately 2 Bcf/d west out of a basin that’s more or less in supply/demand balance,” Rose said.
Tourmaline, which reports in Canadian currency (C$1.00/US 72 cents), reported net income of $256.6 (72 cents/share), versus profits of $510.70 ($1.49/share) in the year-ago period.
