Natural gas prices could climb further after hitting multi-year highs

Rising oil prices might grab headlines, but another commodity – natural gas – is on an even wilder ride and is expected to hit new highs this summer.

The war in Ukraine and the resulting concerns about global energy security have driven up commodity prices around the world. But where the price of oil is up about 85% year over year, natural gas is up more than 200%.

By midday on Friday, the benchmark US natural gas price Henry Hub was trading around US$8.75 per million British thermal units, or MMBtu. It hit a 14-year high of over $9 earlier in the week, from under $3 at the same time last year.

“It’s like oil going up to $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.”

Drivers of price growth are increased exports of liquefied natural gas (LNG) from the U.S. Gulf Coast, aimed to help meet global energy demand, as well as low levels of northern storage. -Americans.

Consumers could see their natural gas consumption bills, tracked by meters like the one above, climb above 14-year highs seen earlier this week. (Kyle Bakx/CBC)

Part of the reason for low inventory levels, said Robert Fitzmartyn, managing director and head of energy research at Stifel FirstEnergy in Calgary, is increased demand as areas like Alberta phase out electricity. coal and replacing it with natural gas.

Weather and labor shortage

And the industry, which weathered more than a decade of depressed prices before the current commodity boom and had to lay off many workers, is struggling to keep up.

“The availability of labor is limited to meet high demand, so the price goes even higher,” Fitzmartyn said.

Natural gas prices are also heavily influenced by weather conditions and heating and cooling demand. This means that extreme heat this summer, as seen in North America in recent years, could push prices even above the US$10 mark.

In a recent report, the U.S. Energy Information Administration stated that “Natural gas prices could rise significantly above expected levels if summer temperatures are warmer than expected…and demand for electricity is higher”.

While Fitzmartyn and Wang are optimistic about the outlook for natural gas, Wang said he expects prices to eventually come down as drillers slowly increase production capacity to meet demand.

“I think if we can get through this summer with relatively normal weather, prices will have more downside potential after winter 2023,” Wang said.

Drilling is expected to increase

Earlier this month, the Canadian Energy Contractors Association – which represents contract drillers and well servicing companies – revised its 2022 drilling forecast from the 6,457 rigs it had forecast in November last year at 6,902.

The CAOEC also revised up its employment projections for the sector this month by 2,484 jobs to a total of 37,409.

Mark Scholz, president of the Canadian Energy Contractors Association, said producers who hire drilling contractors don’t seem as willing to spend money as they were in 2008, the last time natural gas prices have risen. (Radio Canada)

But CAOEC Chairman Mark Scholz said producers hiring the drilling contractors don’t seem as willing to spend money as they were in 2008, the last time natural gas prices increased.

Instead, they are taking advantage of high prices to repair their balance sheets, while offering share buybacks and dividends to appease investors.

“It’s a much better industry now (than in recent years), but I wouldn’t say we’re growing at 110 km/h,” Scholz said in an interview Friday. “It’s a gradual acceleration.”

Yet even a gradual acceleration is good news in Western Canada, home to the majority of the country’s natural gas production and which has suffered for years from declining commodity prices.

Scholz said the industry needs to be even more optimistic about the future, with Canada’s first LNG export facility (LNG Canada, currently under construction in Kitimat, British Columbia) set to come online. in 2026.

“These are really exciting times, and I think it shows how important gas is going to be, both in terms of Canada’s energy transition, and also in terms of the opportunity to export it internationally.” , Scholz said.