Varcoe: Natural gas producers react to sagging prices this winter

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The fickle fortunes of pure gasoline markets have Canadian petroleum producers bracing for weak costs throughout the first half of 2024 and a few revising their spending plans.

Benchmark AECO pure gasoline costs within the province jumped sharply throughout the nasty chilly snap and topped US$10 per thousand cubic ft (mcf) earlier this week, earlier than shortly melting again into the $2 vary, in keeping with information from ATB Monetary.

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On Friday, the U.S. benchmark gasoline worth dipped to US$2.25 per million British thermal items.

It’s a rocky begin to the 12 months, with executives and business analysts anticipating producers to answer costs caught within the doldrums.

Earlier this week, pure gasoline producer Birchcliff Power minimize its annual base dividend in half to 40 cents per widespread share.

The Calgary-based agency additionally introduced it might delay drilling 13 wells deliberate for the primary half of the 12 months till later in 2024, representing about $80 million to $90 million of deliberate spending, stated Birchcliff CEO Chris Carlsen.

(The corporate had set its capital funds between $240 million and $260 million.)

Carlsen, who took over the corporate’s helm in the beginning of the 12 months from retiring CEO Jeff Tonken, stated the adjustments introduced Wednesday will give the corporate the choice of bringing manufacturing on-line later within the 12 months, when commodity costs must be larger.

“That is all within the spirit of defending the stability sheet, primarily based on what we see for the ahead commodity costs,” Carlsen stated in an interview Friday.

“I can let you know, the business is taking a look at their capital applications. It’s not Birchcliff unique. We’re most likely one of many first ones to regulate.”

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Because the announcement, Birchcliff’s inventory dropped 14 per cent on the Toronto Inventory Change.

Business analysts anticipate weak costs for gasoline via the spring and summer season, however an enchancment later within the 12 months.

ATB is forecasting AECO spot costs will common C$2.75 per mcf this 12 months, whereas benchmark U.S. costs common US$3 per million British thermal items.

The U.S. Power Info Administration not too long ago projected spot costs for gasoline will common $2.70 per mmBTU, whereas anticipating American gasoline manufacturing to develop by about 1.5 billion cubic ft per day.

In the meantime, a brand new report by Morningstar DBRS stated the North American gasoline market will doubtless stay weak via early 2024 due to higher-than-average gasoline in storage in the US, at the moment hovering round 11 per cent above five-year ranges.

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Decreased heating demand is predicted with the anticipation of a return to warmer-than-normal temperatures this winter.

Stock ranges going into the winter had been elevated and costs have been “sluggish,” Victor Vallance, managing director with Morningstar DBRS, stated Friday.

“We do see that provide is sort of enough in Western Canada, and definitely as properly within the U.S.,” Vallance stated.

“I believe we’ll see extra firms curtail spending, fewer firms direct spending cash towards pure gasoline growth.”

Regardless of the current chilly snap in Canada and the U.S. over the previous two weeks, this winter has largely seen temperatures above regular with the affect of El Nino.

Whereas Birchcliff led the best way with its plan to shift spending and minimize its dividend, different firms may also be taking a look at deferring capital or transferring it to grease developments.

“What they’re doing could be very prudent. In our view, the Canadian gasoline market is prone to be very oversupplied for 2024,” stated Dulles Wang of vitality consultancy Wooden Mackenzie.

“It means we might be seeing extra producers doing cuts.”

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A current report by Wooden Mackenzie stated that with a surge in Canadian and U.S. gasoline manufacturing and storage inventories final 12 months, the North America gasoline market is awaiting the arrival of one other wave of LNG export tasks.

Doug Dafoe, CEO of personal gasoline producer Ember Assets, famous western Canadian gasoline storage ranges are above common for this time of 12 months, which has created pessimism towards what the costs will appear like in the summertime months.

Nonetheless, the startup of the LNG Canada venture — anticipated in 2025 — will enhance demand and supply a brand new export outlet for western Canadian gasoline. Different LNG developments in Canada are within the works, together with the proposed Ksi Lisims, Cedar LNG and Woodfibre tasks.

As a substitute of progressing its capital program in January and February, Ember has determined to largely transfer its spending from early this 12 months into the fourth quarter.

“We had been all fairly optimistic going into the autumn final 12 months . . . however Mom Nature caught us once more,” Dafoe stated.

“Why would you produce your gasoline right into a worth atmosphere like this?”

That’s why Birchcliff determined to shift spending and drilling into the again half of the 12 months, ready to observe for what occurs with gasoline demand — and costs — within the coming months, Carlsen stated.

“We’re attempting to ensure that we shield ourselves for the draw back . . . We see higher pricing into (the fourth quarter) and into 2025, so it is smart to deliver these wells on later within the 12 months,” he stated.

“We’re not giving up on winter, however definitely whenever you begin it that heat, folks get fairly pessimistic, fairly shortly.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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