KEY POINTS
- Canadian natural gas producers face challenges with oversupply, driving down prices.
- LNG Canada is expected to boost demand, but full ramp-up may not occur until late 2025.
- Analysts caution that an early resurgence in production could stress the market again.
Canadian natural gas producers are battling with a supply surplus, driving down prices as they anticipate increasing demand from the forthcoming LNG Canada export project. Despite expectations of a jump in pricing, corporations are struggling with surplus supply and storage limits, heightening concerns about market instability.
Surging supply and price slump
A increase in production and overflowing storage caused natural gas prices at Alberta’s AECO hub to drop to a two-year low in late September. Some businesses have been obliged to reduce production by up to 1 billion cubic feet per day (bcf/d), or around 5 percent of Canada’s total output, as a result of many others increasing production in preparation of LNG Canada’s launch.
To avoid selling gas at a loss, producers such as Advantage Energy and Canadian Natural Resources Ltd. have temporarily stopped production or postponed the completion of new wells. According to Reuters, Michael Belenkie, CEO of Advantage Energy, said that some producers “started to front-run the growth in demand” by continuing to operate in spite of the low prices.
LNG Canada’s impact and market expectations
Expectations for a future price recovery are raised by the LNG Canada facility, which is scheduled to start operations in 2025 and will require about 2.1 bcf/d of gas.
Analysts are still wary, though, as futures markets suggest that AECO prices would only drop significantly from their initial estimates to C$2.46 per gigajoule by September 2025.
Jean-Paul Lachance, CEO of Peyto Exploration, expressed worries that the market would see fresh pressure if production picks up too soon. He underlined that although LNG Canada would aid in price stabilization, the complete ramp-up might not take place until the second half of 2025.
Potential for price recovery
According to analysts, the activities of LNG Canada may lessen the price volatility of the AECO market, which has historically been subject to sharp fluctuations.
They warn, however, that an early output rebound might overwhelm the market once more. Although there is still a chance of oversupply, recent price increases motivated by curtailments and higher demand from Alberta’s oil sands give some hope.
Canadian gas producers are cautiously hopeful about the LNG Canada project’s progress, but they are also apprehensive about the possibility of delays if the market becomes saturated before the facility fully ramps up.
