An oil drilling rig operates surrounded by canola and hay fields near Cremona, Alta., on July 12, 2021.Jeff McIntosh/The Canadian Press
Despite soaring global demand for natural gas, Canadian producers are struggling with volatile prices and deep discounts. The result is that Western Canadians now have access to some of the cheapest natural gas in the world.
In August, the spot price for gas briefly turned negative at Alberta’s AECO hub, one of the largest storage facilities in North America. This week, two gas producers temporarily cut production due to weak prices.
Lower prices have benefited consumers and resource companies in Western Canada. But producers warned the pricing slump also means lost royalty revenues for the Alberta government and risks deterring capital investment.
Canadian gas producers have been struggling with volatile pricing for years because of capacity limitations on pipelines shipping gas from Alberta and B.C. to markets across North America. The problem tends to worsen every summer because of pipeline maintenance work.
Rising production, maintenance on TC Energy’s Nova Gas Transmission Line, along with outages at processing facilities this summer, have created bottlenecks in Alberta and helped to drive down prices. The Nova Gas Transmission Line is the main system for gathering and transporting natural gas out of Western Canada, accounting for around 75 per cent of Canada’s overall production.
Prices have recovered since late August, but the discount to the U.S. benchmark price is still more than $5.
The Canada Energy Regulator is monitoring the situation, but will not intervene without being asked by parties involved, said the agency’s chief economist Jean-Denis Charlebois.
In 2019, when AECO prices endured a longer-lasting slump, the regulator enacted a protocol that allowed shippers to put more gas into storage and avoid selling it at very low prices. That protocol expired at the end of 2020.
The regulator is open to helping improve the situation, including hearing revised tariff proposals or conducting workshops to help communication between parties, Mr. Charlebois said.
TC Energy attributed the deep AECO discount to abundant western Canadian supply and limited pipeline space, and said the solution is to build extra capacity. The company said it is working to add capacity, but has been delayed by weather, labour shortages, increasing environmental requirements and regulatory and government delays, a spokesperson added.
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