Rising oil prices may occupy most headlines, but another commodity, natural gas, is on an even wilder path and is expected to hit new highs this summer.
The war in Ukraine and the consequent concerns about global energy security have pushed up commodity prices around the world. But where the price of oil rises by 85% year-on-year, natural gas rises by more than 200%.
As of noon on Friday, the Henry Hub Hub US natural gas reference price was trading at around US $ 8.75 per million British thermal units, or MMBtu. It rose to a 14-year high of more than $ 9 earlier in the week, from less than $ 3 at the time last year.
“It’s like oil is going to be at $ 200 a barrel, but it’s not getting the same kind of attention,” said Dulles Wang, a Calgary-based Wood Mackenzie analyst. “And I think there’s probably even more upside potential for natural gas prices.”
Growth in prices is driving the rise in liquefied natural gas (LNG) exports from the U.S. Gulf Coast, with the goal of helping meet global energy demand, along with low levels of energy. American storage.
Consumers could see their natural gas consumption bills, tracked by meters like the previous one, rise above the 14-year highs seen earlier this week. (Kyle Bakx / CBC)
Part of the reason for the low inventory levels, said Robert Fitzmartyn, managing director and head of energy research at Stifel FirstEnergy in Calgary, is the increase in demand as regions like Alberta eliminate coal energy and they replace it with natural gas.
The time and scarcity of workers
And the industry, which has gone through more than a decade of depressed prices before the current boom in commodities and has had to lay off many workers, is struggling to keep up.
“There is limited labor availability to meet high demand, so the price goes up even more,” Fitzmartyn said.
Natural gas prices are also heavily influenced by climate and the demand for heating and air conditioning. This means that the extreme heat of this summer, as seen in North America in recent years, could drive up prices, even above US $ 10.
In a recent report, the U.S. Energy Information Administration said that “natural gas prices could rise significantly above projected levels if summer temperatures are warmer than expected. and electricity demand is higher. “
While both Fitzmartyn and Wang are optimistic about the prospects for natural gas, Wang said he expects prices to end up drilling as drills slowly increase production capacity to meet demand.
“I think if we can get through this summer with relatively normal weather, prices will have more potential to go down after the winter of 2023,” Wang said.
Drilling is expected to increase
Earlier this month, the Canadian Association of Energy Contractors, representing contracted drillers and well service companies, revised its drilling forecast for 2022 from 6,457 platforms it had projected in November. from last year to 6,902.
The CAOEC also revised upwards its employment projections for the sector this month in 2,484 jobs to a total of 37,409.
Mark Scholz, president of the Canadian Association of Energy Contractors, said producers who hire drilling rig contractors do not seem as willing to spend money as they were in 2008, the last time natural gas increased. (CBC)
But CAOEC President Mark Scholz said producers hiring drilling rig contractors do not seem as willing to spend money as they were in 2008, the last time natural gas prices rose.
Instead, they take advantage of high prices to repair their balance sheets, as well as offer buybacks and dividends to appease investors.
“It’s a much better industry to be in today (than in recent years), but I wouldn’t say we’re growing at 110km per hour,” Scholz said in an interview Friday. “It’s a gradual acceleration.”
However, even a gradual acceleration is welcome news in western Canada, which hosts most of the country’s natural gas production and has suffered years of declining commodity prices.
Scholz said there is still more for the industry to be optimistic about the future, and Canada’s first LNG export facility (LNG Canada, currently under construction in Kitimat, BC) is expected to enter operation in 2026.
“These are really exciting times and I think it demonstrates how important gas will be, both in terms of Canada’s energy transition, as well as the opportunity to export it internationally,” Scholz said.