Price of natural gas could climb higher still after cresting multi-year highs

The rising value of oil might seize many of the headlines, however one other commodity — pure gasoline — is on a fair wilder journey and anticipated to hit recent highs this summer time.

The battle in Ukraine and ensuing issues about international power safety have pushed up commodity costs world-wide. However the place the worth of oil is up about 85 per cent year-over-year, pure gasoline is up greater than 200 per cent.

As of mid-day Friday, the U.S. pure gasoline benchmark Henry Hub value was buying and selling round $8.75 US per million British thermal models, or MMBtu. It surged to a 14-year excessive of greater than $9 earlier within the week, from lower than $3 at the moment final 12 months.

“It is like if oil went to $200 (per barrel), nevertheless it’s not getting the identical sort of consideration,” mentioned Dulles Wang, a Wooden Mackenzie analyst based mostly in Calgary. “And I believe there’s in all probability nonetheless extra upside potential for pure gasoline costs.”

Driving the expansion in costs are surging liquefied pure gasoline (LNG) exports from the U.S. Gulf Coast, geared toward serving to to satisfy international demand for power, together with low North American storage ranges.

A part of the rationale for the low stock ranges, mentioned Robert Fitzmartyn, managing director and head of power analysis at Stifel FirstEnergy in Calgary, is elevated demand as areas corresponding to Alberta section out coal-fired energy and substitute it with pure gasoline.

Climate and employee shortages 

And the business, which has gone by means of greater than a decade of depressed costs previous to the present commodities increase and needed to lay off many employees, is having a tough time maintaining.

“There’s restricted labour availability to satiate elevated demand, so the worth goes even greater,” Fitzmartyn mentioned.

Pure gasoline costs are additionally closely influenced by climate and the demand for heating and air con. Meaning excessive warmth this summer time, as has been seen in North America lately, may spike costs greater, even above the $10 US mark.

In a latest report, the U.S. Power Data Administration mentioned that “pure gasoline costs may rise considerably above forecast ranges if summer time temperatures are hotter than assumed . . . and electrical energy demand is greater.”

Whereas each Fitzmartyn and Wang are bullish on the outlook for pure gasoline, Wang mentioned he expects costs will ultimately come down as drillers slowly ramp up manufacturing functionality to satisfy demand.

“I believe if we are able to get previous this summer time with comparatively regular climate, costs could have extra draw back potential after the winter of 2023,” Wang mentioned.

Drilling anticipated to extend

Earlier this month, the Canadian Affiliation of Power Contractors — which represents contract drillers and nicely servicing firms — revised its 2022 drilling forecast from the 6,457 rigs it had projected in November of final 12 months to six,902.

The CAOEC additionally revised its employment projections for the sector upwards this month by 2,484 jobs to a complete of 37,409.

However CAOEC president Mark Scholz mentioned the producers who rent the drilling rig contractors do not appear as prepared to spend cash as they had been again in 2008, the final time pure gasoline costs surged.

As an alternative, they’re benefiting from the excessive costs to restore their stability sheets, in addition to providing share buybacks and dividends to appease buyers.

“It is a significantly better business to be in in the present day (than lately), however I would not say we’re rising at 110 km an hour,” Scholz mentioned in an interview Friday. “It is a gradual acceleration.”

Nonetheless, even a gradual acceleration is welcome information in Western Canada, which is residence to nearly all of the nation’s pure gasoline manufacturing and has suffered by means of years of depressed commodity costs.

Scholz mentioned there’s much more for business to be optimistic about going ahead, with Canada’s first LNG export facility (LNG Canada, presently below development in Kitimat, B.C.) anticipated to return on-line in 2026.

“These are actually thrilling instances, and I believe it reveals simply how essential gasoline goes to be, each when it comes to Canada’s power transition, and likewise the chance to export it internationally,” Scholz mentioned.