CALGARY, ALBERTA / NEW YORK, Oct.25 (Reuters) – Demand for relatively cheap Canadian natural gas has skyrocketed, propelling exports to the United States to three-year highs and prompting Canadian producers to step up investment and drilling activities.
Global natural gas prices have hit multi-year highs as global economies recover from last year’s slowdown during the pandemic. Now, natural gas supplies in Europe are dangerously low and demand in Asia insatiable, with utilities around the world competing to export liquefied natural gas (LNG).
Canada’s gas is remote and prices at the AECO hub in Alberta are among the cheapest in North America, with production a long way from major U.S. demand centers and LNG export terminals on the U.S. Gulf Coast, approximately 2,500 miles (4,023 km) away . Canada does not have any LNG export terminals.
Still, at around $ 5 ($ 4.12) per million British thermal units (mmBtu), AECO prices are well above their 2021 annual average of $ 3.38 ($ 2.73), and some of Canada’s largest gas producers, including Tourmaline Oil Corp (TOU.TO) are trying to capitalize.
“A number of manufacturers are accelerating capital into the fourth quarter (fourth quarter) to bring production volume into the higher-priced winter market,” said Matt Murphy, an analyst at Tudor, Pickering, Holt & Co (TPH) in Calgary.
Gas inputs to TC Energy’s NGTL pipeline system (TRP.TO) hit an all-time high of 12.75 billion cubic feet per day (bcfd) in mid-October, according to TPH records from 2013. The NGTL system is the major artery to market Western Canadian gas and can be used as a proxy for production from the region.
TPH forecasts further growth in gas inputs to 12.9 billion cubic feet in December with new highs in 2022.
Data provider Refinitiv said Canadian exports to the United States averaged 8.3 billion cubic feet year-to-date, the highest in that period since 2018. Canadian exports reached their lowest in 2020 due to the pandemic, according to the US Energy Information Administration As of 1993 data.
The surge in drilling activity in Canada contrasts with a more cautious approach by US gas producers, who have decimated demand in 2020 after the pandemic and left the industry on its knees, still cautious with their capital.
According to energy services company Baker Hughes Co (BKR.N).
Tourmaline, Canada’s largest gas producer, is accelerating drilling in the second half of the year and bringing the investments originally planned for 2022 into this year, according to a company presentation in September.
“The company will monitor natural gas supply and demand balances and plan new production starts accordingly during the winter and through to the end of 2022,” said Tourmaline.
The company expects to produce an average of 500,000 to 510,000 barrels of oil equivalent over the next year, up from 440,000 to 445,000 in 2021.
Other major Canadian gas producers increasing their activities include Canadian Natural Resources Ltd (CNQ.TO) and ARC Resources (ARX.TO), industry analysts said. ARC declined to comment and CNRL did not respond to a request for comment.
However, a lack of skilled crews to operate oil rigs in Canada could limit growth in gas production, and some producers remain cautious that increased supply could dampen prices.
“How can we do more even if we wanted to do more? We are at the limit of the number of employees we have,” said Darren Gee, chief executive of Peyto Exploration and Development Corp (PEY.TO).
($ 1 = 1.2363 Canadian dollars)
Additional coverage from Rod Nickel in Winnipeg; Editing by David Gregorio
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