As natural gas producers endure another arduous year marked by low prices in Alberta, all eyes are on the new provincial government and its efforts to revitalize the hard-hit sector.Second-quarter results for natural gas producers have been rolling out recently, highlighting the weak prices reported at the AECO hub in the province.Peyto Exploration and Development, one of the largest gas producers in Alberta, on Thursday noted the daily AECO gas price averaged just 98 cents per gigajoule in the April-to-June period, down from $2.49 in the first quarter.It said the volatility has continued into the third quarter, with daily prices fluctuating from just 18 cents up to $2.28 per gigajoule in July.With the sector facing ongoing pressure from dismal prices, a broad sell-off of energy stocks and pipeline constraints, many are waiting to see what action the Kenney government will take to tackle some of the sector’s fundamental issues.
Natural gas prices were down to 98 cents per gigajoule in the second quarter of 2019.
“We have a provincial government that is quite keen to fix this AECO problem … and the price swings,” Peyto CEO Darren Gee said Thursday on a second-quarter earnings call.“I think they’re looking for solutions in the very near term, to try and impact (it) even this summer, let alone next summer.”Not all producers are affected by AECO gas prices, but those that are say the volatility makes planning extraordinarily difficult.In a note to shareholders this week, Pine Cliff Energy CEO Phil Hodge pointed out the benchmark AECO gas price careened wildly within just a six-day period last month, trading as low as three cents to more than $2 per thousand cubic feet.During the second quarter, the company reported negative funds flow for only the third time in the past 29 quarters, he noted.“There is clearly a recognition from the new government that the Alberta gas industry can play a pretty significant role in the overall health of the province,” Hodge said in an interview.“And we’re going through a really rough patch here.”The natural gas sector is facing an array of complex issues.A new note from Raymond James reported Canadian gas production sat at 14.1 billion cubic feet per day last week, falling 1.5 bcf/d from last year and trending lower.Gas prices in the United States have also weakened recently. With the failure earlier this year of Trident Exploration Corp., there are many questions about the health of the industry, particularly dry natural gas producers in Alberta.“It is still on a lot of life support,” said analyst Jeremy McCrea of Raymond James.“There are some real concerns here that things need to get better — and soon.”Alberta’s Associate Natural Gas Minister Dale Nally held meetings last month with a group of five producers — including Peyto — on issues facing the industry and possible solutions.The province took its first step to addressing some of the nagging problems last month, vowing to provide relief to gas producers from overvalued municipal tax assessments.
Dale Nally is sworn in as Associate Minister of Natural Gas during the swearing in of Premier Jason Kenney’s government at Government House in Edmonton, on Tuesday, April 30, 2019.
Ian Kucerak /
A bigger challenge is solving the pricing dilemma and transportation constraints.One proposal floated by some producers who met with Nally would see the province provide royalty credits to companies that voluntarily throttle back gas output during periods of maintenance on the Nova Gas Transmission Ltd. (NGTL) pipeline network.The province has looked for solutions to the pricing volatility in the wake of a report late last year by its natural gas advisory panel that examined ways to revive the industry.Since 2017, AECO gas prices have become increasingly volatile after TransCanada (now TC Energy) adopted changes to its NGTL network on how it would restrict production during maintenance.The move prioritized firm-service gas contracts and restricted production for interruptible gas deliveries, affecting gas moving into storage, which has caused prices to gyrate.Pine Cliff’s Hodge said he hopes the “voluntarily curtailment system” is adopted, even if it’s just for the short term during summer maintenance periods when prices frequently rise and fall, until TC Energy completes the ongoing expansion of its gas pipeline system.“It makes sense to me. If the province is (kept) revenue-neutral and the citizens aren’t contributing or subsidizing any of this … I think there’s a benefit to producers,” he added.Gee believes the voluntary supply-management initiative would act like a drilling-incentive program, which typically provides companies with a royalty credit to drill in certain areas.Related
“We wait to see what kind of solutions they want to propose,” he said.“They have a whole laundry list of things they were looking at to help fix the natural gas situation and market disconnection in Alberta.”Nally was not available for an interview Thursday but issued a statement that the government is examining the various issues.“We are looking at several possible actions to minimize price volatility and restore confidence in our natural gas sector,” he said, adding the producer group’s proposal warrants consideration.“The natural gas industry is complex with many competing interests, which makes it challenging to find solutions that will be supported across the sector.”In other words, there would be opposition to the idea of more government interference in energy markets, coming as the province’s contentious oil-curtailment program grinds on.And the consequences of any action must be well understood.“You don’t have nearly as much buy-in to do this versus oil, so the government is in a bit of a tight spot here,” McCrea said.Given the challenges at play, natural gas producers will be anxiously waiting for a decision by the Alberta government in the coming months — and watching as roller-coaster prices continue to batter the bottom line.Chris Varcoe is a Calgary Herald email@example.com