Feelin' Good Again - For Canadian Producers, the Most Promising Natural Gas Price Outlook in Years

As the new heating season in North America gets under way, the natural gas sector in Canada, the U.S., and even globally, is experiencing a surge in gas prices to levels unseen in many years. In Canada and the U.S., you would have to go way back to 2008-09 to find the most recent instance of $5/MMBtu-plus gas heading into a heating season. As for the rest of the world, it has never experienced prices at the levels reported in the past few months — north of $30/MMBtu in some places. The big question, as always, is: where do we go from here? In today’s RBN blog, we review our 2021 pricing outlook for Canadian gas and discuss our forecast for 2022.

It has been 11 months since we laid out our 2021 forecast for Canadian natural gas prices in RBN’s weekly NATGAS Billboard Canada report (January 19, 2021). At the time, our mid-scenario outlook — based on a Henry Hub price of $2.50/MMBtu, anticipated an average AECO price of $2.00/MMBtu, or C$2.43/GJ, for 2021. That looked very reasonable at the time, given that the two-buck forecast for AECO represented a gain of 20% over the 2020 average price ($1.67/MMBtu) and was within a dime of the average AECO forward prices for the remainder of the year as those stood in early January.

As we all know, 2021 did not turn out to be a normal year, especially on the energy front. The AECO price from January through October averaged $2.78/MMBtu (C$3.30/GJ; black bar in Figure 1), and cash prices as of Monday stood at $3.71/MMBtu (C$4.40/GJ). If the average price to date were to prevail for all of 2021, this would be the strongest average AECO price since the $4.05/MMBtu (C$4.24/GJ) average in 2014 (orange bar), though still well below the super-high price in 2008 (red bar). Further, if current cash prices held sway for the remainder of the year, the AECO price average would be closer to $2.96MMBtu (C$3.51/GJ). In both cases, this is well ahead of the $2.00/MMBtu (C$2.43/GJ) outlook we offered up at the start of the year, driven upward by very bullish fundamentals and global developments since then.

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