The desire to export to the United States continues
Cold winters further increase AECO prices
Canada’s natural gas production continues to show remarkable strength this summer, but the country’s storage reserves remain 11% below the five-year average, which is about twice as much as US reserves as winter approaches.
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According to S&P Global Platts Analytics, Western Canada’s storage fields will hold 408 BCC of gas by August 27. This is an average of 457 BCF over the past five years and 487 BCC over the previous year.
Even under normal weather conditions, plastics analysis predicts a tight balance for Western Canada this summer. Exports to the United States are expected to be strong, and demand is higher than expected in the winter.
Platt analysts expect Canadian demand to grow by 300 to 400 MMcf / d by the end of this summer, mainly from coal-fired power plants. In addition to strong environmental demand, the strength to export to the United States last winter seems to be on its way. Last year, Oklahoma production was badly damaged by the epidemic, which led to lower supply to the United States in the Middle East. It is expected to continue this summer. This means that Western Canada could fill this void in the upper midwestern United States. This pulls AECO over the Great Lakes and Viking Pipes.
Canadian producers developed growth plans last summer that could lead to an increase of 800 MMcf / d. However, even a new product of this size will keep the market narrow and prone to cold winters.
These manufacturing plans are set at the beginning of the year when AECO is expected to be below $ 3.00 / MMBtu or below $ 2.50 / MMBtu. However, AECO is now expected to be above 3.00 / MMBtu, which is the strongest in years.
Manufacturers’ financial health has improved significantly over the past two quarters following improved commodity prices and continued financial discipline. Canadian operators have reduced their debt by an average of 11% since the beginning of the year. Platt analysts expect a reduction of more than 20% by the end of the year.
Meanwhile, US gas operators have reduced their net debt by only 5% since the beginning of the year. Broadly speaking, operators are stuck with capital discipline, but Canadian operators are quick to pay their debts and start relocating capital to the drill bit. Canadian gas operators are expected to increase their current capital expenditure by 21% year-on-year, up from 13% from their original direction. Compare that to US gas operators who should have really stuck to capital discipline by lowering their average by 4% by 2021.
Western Canada’s productive capacity, with local demand growth, such as low-volume packaging, high prices, high export demand, and average financial health on average compared to US operators.
Based on the 3.00 AECO price tag and the growing financial situation for operators in Canada, the outlook has improved significantly over the past few years.