Canadian gas is fetching its best price in 10 months because of drilling cutbacks and changes to pipeline rules.
Canadian natural gas is trading at the highest price relative to U.S. benchmarks in about 10 months after producers cut back on drilling and a rule change on a key Alberta pipeline system last year helped better manage flows of the fuel.
The discount on gas traded at Alberta’s AECO hub versus the Henry Hub in the US shrank to 4 cents per million British thermal units on Friday, the smallest gap since March 1.
AECO prices began to climb in September and the rally gained momentum at the end of the month when TC Energy Corp. temporarily changed the tariffs on its NOVA Gas Transmission Ltd. pipeline network, or NGTL, which carries much of Alberta’s gas production. The modification gave producers increased access to storage during periods of maintenance on the system, damping pricing volatility during the often turbulent summer and fall seasons.
The gains persisted into November, even after the temporary rule change went out of effect, as producers who have been hammered by “dismal” AECO prices over the past two years dialed back on drilling, RS Energy Group associate Thomas Kirk-Pearson said in an interview. Western Canadian gas production declined by 300 million cubic feet a day last year and may slide another 1.7 billion cubic feet a day this year, Kirk-Pearson said.
Prices also have gotten a bump in recent days as cold weather settled in over western Canada, increasing local heating demand, he added.
The future of the rally may hinge on whether the recent higher prices encourage producers to increase drilling activity.
“The next couple months are going to be very important to the story,” Kirk-Pearson said. “We’ll be watching very closely to see if rigs pick back up.”