Cheap natural gas prices provide some welcome relief on utility bills as Canadians heat their homes this winter, and prices are expected to remain low for much of this year.
For Western Canada’s natural gas industry, it’s a return to low commodity prices after a few years of increased profits.
Natural gas sells for about $2.09 per million British thermal units (mmBTU), up from more than $7.50 in 2022.
At the start of this winter, natural gas production was high and storage levels in Western Canada were at record levels. The mild winter meant much less demand for natural gas to heat buildings. Even a brief period of intense, extremely cold weather in January did not lower storage levels.
For natural gas producers, profits take a hit.
“They are gritting their teeth, wringing their hands and hoping for the best,” said Martin King, senior analyst with Calgary-based RBN Energy.
The planned completion of LNG Canada’s export terminal in British Columbia in the middle of this year brings some level of optimism to the sector, King said, although the impact on prices is difficult to predict.
“That could be enough to shift market balances and improve prices,” King said. “But it’s an idea that hasn’t been tested yet, no one is really sure.”
In the United States, prices are also low due to warm winter weather and relatively high production levels. A closure to a LNG export facility in Texas reduces the amount of natural gas that can be shipped to international markets.
U.S. natural gas prices face a tough year as they are expected to remain low throughout 2024, said Christopher Louney, a New York-based commodities strategist at RBC Capital Markets. Louney expects prices to improve in 2025, once construction of new LNG facilities is completed.
“I think producers are definitely looking to next year rather than this year, which continues to be difficult,” he said.
Natural gas is not a major factor contributing to inflation, but economists say falling commodity prices should contribute. There are savings not only for consumers, but also for many other industries, such as manufacturing.
This month, Canadian natural gas prices are down about 25 percent from a year ago.
“Anything that helps bring down inflation will be warmly welcomed by the central bank and it is more likely that it will be able to cut interest rates sooner rather than later,” said Craig Alexander, former chief economist at Deloitte and T.D. Bank.
Natural gas prices can be volatile and hugely influenced by weather, Alexander said. Still, given strong production and high storage levels, he said it would take a prolonged period of freezing temperatures for prices to change noticeably.
In Alberta, the provincial government is already facing a decline resource revenue compared to previous years due to the drop in oil prices in recent months. A drop in natural gas prices could make it more difficult for the government to unveil a balanced budget next month.