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Natural gas prices

Natural gas prices

Posted on: 8/6/2019 | Author: ATB Economics

​​The crude oil part of Alberta’s oil and gas industry gets most of the attention these days, but natural gas remains an important—albeit smaller than in the past—slice of Alberta’s economic pie.

Alberta’s natural gas sector took a major hit at the end of the aughts when fracking and horizontal drilling created a lot of additional U.S. natural gas supply. As U.S. production increased, the price went down, and things got tougher for Alberta producers.

Unfortunately, things have gotten even worse with the price of Alberta gas trending lower and lower over the last couple of years. Alberta natural gas averaged U.S.$1.80/MMBtu in 2017 (AECO price benchmark). This was down to 1.18 in 2018 and is forecast to be even lower in 2019.

At the same time, the gap between the price of Alberta gas and U.S. gas (Henry Hub price benchmark) has widened, going from an average of U.S. $0.52 to 1.89 in 2018. Alberta gas normally sells at a lower price because of greater shipping costs, but the reason for the recent increase in the differential and the extremely low prices for Alberta gas goes beyond shipping costs.

While there are a lot of moving parts to the North American natural gas market, one of the key reasons for the low prices for Alberta gas is pipeline bottlenecks. Fixing this problem will take time. It will also take time to address the root problem of an oversupplied North American market by gaining access to overseas customers.

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