This year looks like it could be a better one for many Canadian natural gas producers. Like their brethren in the U.S., they have been forced in recent years to increasingly spend within — and even less than — cash flow as other sources of financing have dried up and investors have prioritized better returns over production volume growth. With Canadian gas producers having also faced some of the worst natural gas pricing conditions on record in 2019, far worse than those in the U.S., it is no wonder that Canadian natural gas supplies pulled back in 2019, marking the first down year for overall gas supplies since 2012. Despite what is likely still to be a cash flow and spending constrained environment in 2020, there is the potential for real upside for Western Canadian natural gas supplies this year, especially for the supply that flows into TC Energy’s Nova pipeline system. Today, we consider what may be setting the stage for gas supply gains on the Nova system in 2020 after a somewhat dismal 2019.
The start of every new calendar year seems to bring a fresh perspective on what may be in store in the next 12 months and a more objective viewpoint about what transpired in the previous 12 months. For Canadian natural gas producers, what transpired in 2019 might be more worth forgetting, as the industry suffered through some of the worst natural gas prices on record, including two instances of negative prices. Prices at Western Canada’s gas benchmark AECO in June 2019 (red column in left graph of Figure 1) hit an all-time monthly average low of just C$0.47/GJ (US$0.37/MMBtu. And that occurred in a year that was characterized by very low prices in the summer and plenty of wild price volatility in the opening and closing months of 2019 (right graph in Figure 1). In general, AECO winter prices have held up relatively well, but summer pricing has been on something of a downtrend in the past few years, with 2019, as mentioned, being exceptionally weak in some months (compare black dashed ovals in left graph of Figure 1).
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