Canada Natural Gas Hits Two-Year High on Exports to Frigid U.S.

Jan 06, 2014 7:49 pm ET

Jan. 7 (Bloomberg) -- Canadian natural gas prices rose to the highest level in more than two years as frigid weather flooding the U.S. Midwest boosted heating demand.

An arctic front is delivering the coldest weather the Midwest has seen in 20 years, according to Meteorologist Brian Lada at Accuweather.com. Wind-chill warnings are in effect for much of the eastern two-thirds of the U.S., with temperatures reaching minus 63 degrees Fahrenheit (minus 53 Celsius) in northeast Montana, according to the Weather Prediction Center.

Natural gas at the AECO export hub in Alberta jumped 5.4 percent to $4.08 per million British thermal units yesterday, its highest price since June 2011, according to data compiled by Bloomberg. AECO’s discount to U.S. natural gas on the New York Mercantile Exchange narrowed to 22.6 cents, the lowest in a month.

“With this latest cold wave coming in, all guns are blazing, people are buying gas anywhere they can find it, and that includes southern Alberta,” said Martin King, an analyst with FirstEnergy Capital Corp. in Calgary.

King estimates that net gas exports to the U.S. reached their highest level in three years on Saturday at almost 8.5 billion cubic feet a day, based on pipeline data collected by his firm.

If his estimate is correct, it’s a drastic turn in fortunes for the country’s natural gas industry, which has seen declining exports for the last five years as new drilling technology unlocked sources of gas production from shale basins closer to U.S. markets. In November 2012, Canada’s monthly net natural gas deliveries to the U.S. were the lowest since 1991, based on U.S. Energy Information Administration data.

Net Exports

Canada’s net exports were 5.27 billion cubic feet a day in September, down from 5.56 billion a year earlier, according to the EIA’s latest report, which trails actual activity by about three months.

Gas inventories in Canada have tumbled with the increase in demand. As of Nov. 17 storage was 702.29 billion cubic feet, the highest seasonal level in at least 10 years, according to estimates by Enerdata Ltd. The situation reversed in December, with storage dropping to 508.6 billion as of Dec. 29, the lowest seasonal level in five years.

Pipelines that transport Canadian gas to the U.S. have also showed rising demand. Spectra Energy Corp.’s Maritimes & Northeast natural gas pipeline said yesterday nominations to ship northern natural gas into Maine had exceeded the line’s capacity.

“Two months ago everybody was still writing off Canadian exports to the States as being a rounding error,” King said. “As far as I can tell since then we’ve been bailing out the U.S. gas industry, given the amount of gas that’s been going to the States.”

--Editors: David Marino, Richard Stubbe