Weak Alberta gas prices to hurt producer, provincial revenues

Kelt Exploration

13/10/2017 18:10

By Nia Williams 
    CALGARY, Alberta, Oct 13 (Reuters) - Western Canadian 
natural gas prices have been stuck at historically weak levels 
since summer due to prolonged pipeline maintenance, which will 
hurt producers' quarterly profits and royalties paid to the 
cash-strapped province of Alberta. 
    In the Alberta market, known as AECO, spot natural gas 
prices for immediate delivery have turned negative eight times 
in the last three months, most recently on Oct. 9, meaning 
producers got nothing for gas sold on those days.     
    Throughout the third quarter of 2017 AECO spot prices 
fluctuated wildly, averaging around C$1.36 a gigajoule, down    
C$2.05 a gigajoule or roughly a third on the whole of 2016, also 
a weak year. 
    One reason is hefty maintenance and expansion work on 
TransCanada Corp's  TRP.TO  NOVA Gas Transmission Ltd (NGTL) 
pipeline system that has resulted in more severe capacity 
outages than market players expected and hindered gas flow 
across western Canada. 
    "In August, September and October we have seen these wild 
swings and the price has gone ridiculously low. It's literally 
unprecedented," said GMP FirstEnergy analyst Martin King, who 
has tracked Canadian gas prices since 1993. 
    Encana Corp  ECA.TO  and Kelt Exploration Ltd  KEL.TO  have 
shut in some natural gas production because of the maintenance 
work and weak prices.  urn:newsml:reuters.com:*:nFWN1M8080 urn:newsml:reuters.com:*:nASB0BMAE 
    BMO Capital Markets this week downgraded their trading 
recommendations on Tourmaline Oil Corp  TOU.TO , Peyto 
Exploration and Development  PEY.TO , Advantage Oil & Gas Ltd 
 AAV.TO  and Paramount Resources Ltd  POU.TO  to "market 
perform" from "outperform" because of exposure to AECO prices.  
    Weak prices will also affect the royalties gas producers pay 
to the province of Alberta, which are based on AECO spot prices 
and contributed C$520 million to the province's coffers last 
fiscal year, about 1.2 percent of revenues. 
    The Alberta government last updated its 2017-18 natural gas 
price forecast in August to C$2.60 a gigajoule, down 30 cents 
from its original budget estimate. A weaker gas price this year 
could deepen Alberta's expected C$10.5 billion deficit.  
    "This is a bigger issue than oil and gas companies getting 
smaller profits, it's less money going into the hands of the 
province," GMP FirstEnergy's King said. 
    Alberta Treasury Board and Finance spokesman Mike Berezowsky 
said if needed the gas price forecast would be revised in the 
November budget update. 
    Price swings have been accentuated by the maintenance 
limiting access to gas storage facilities, leaving producers no 
option but to shut in production or send gas to the AECO market 
hub, where it has bottlenecked. 
    "The market does not have the shock absorber of storage," 
said ARC Financial analyst Jackie Forrest. 
    TransCanada spokeswoman Ruth Anne Beck said the company had 
met most of its firm service commitments recently and it told 
customers about expansion and maintenance plans early and often 
to minimize impact on production and gas flows.  
    Once the maintenance is complete capacity on the northwest 
part of the NGTL system will increase by 700 million cubic feet 
a day, adding 6 percent to the entire network and helping 
alleviate the bottleneck. 
    However BMO analysts expect prices to remain under pressure 
as western Canadian production grows from 15.8 billion cubic 
feet a day (Bcf/d)in 2017 to 18.7 Bcf/d in 2019. 
    "The resulting structural imbalance could place downward 
pressure on Western Canadian natural gas prices through 2019," 
analyst Randy Ollenberger said in a note. 
 
 (Reporting by Nia Williams; Editing by Susan Thomas) 
 ((nia.williams@thomsonreuters.com; +1 403 531 1624; Reuters 
Messaging: nia.williams.thomsonreuters.com@reuters.net)) 
 
Keywords: CANADA ENERGY/GAS