Last summer, Alberta natural gas prices staged a remarkable turnaround from the dismal lows and extreme volatility experienced the prior three summers. The price rise is widely credited to a temporary gas flow mechanism put in place by the operator of Alberta’s gas pipeline grid to combat congestion and oversupply issues associated with construction and maintenance during the summer of 2020. However, this temporary mechanism was just that — temporary — and will not be reinstated this summer. Without it, there is concern among Western Canadian gas producers that the weakness and volatility in gas prices seen during past summers might return this year. With warmer weather on the horizon, today we consider these issues and the potential for renewed price weakness in the Alberta natural gas market this year.
Canada’s AECO natural gas price benchmark enjoyed some wild times last month as what’s now called the Deep Freeze enveloped much of North America, pushing up prices to levels not seen since 2014. The February spike was a notable outlier in what has been a recovery story for AECO prices that began in 2020 — a recovery, it must be said, that followed an awful couple of years. We discussed some of the brutal price lows in 2017-19 and a few of the reasons behind them in Don’t Do Me Like That and Don’t Be Afraid. We noted that AECO prices during the gas storage injection seasons (April through October) for those three years were often trading at pennies or, on a few occasions, even went negative. The reasons behind the weak prices and eventual recovery in 2020 are numerous and will be detailed shortly, but a brief background is needed on Alberta’s primary natural gas pipeline network.
TC Energy’s Nova Gas Transmission Limited (NGTL; yellow lines in Figure 1) is a natural gas pipeline system that spans Alberta and northeastern British Columbia (BC). This vast system transports about 80% of all the natural gas produced in Western Canada and is connected to all the storage sites across Alberta, which have a total of about 480 Bcf of working gas storage capacity.
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