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The Equaliser - Canadian Gas Market Slowly Rebalancing Thanks to Improved Exports, Less Production

In natural gas markets, warmer-than-average winters usually translate into oversupply conditions as heating demand draws less gas out of storage than what would normally be expected. When compounded by rapidly rising domestic production and soft gas exports, the result is even greater oversupply. That is exactly how the Canadian gas market finished the most recent heating season, facing a substantial oversupply of gas that, if it persisted, could result in domestic gas storage reaching capacity well before the start of the next heating season. However, when it comes to natural gas markets, or any other market for that matter, expect the unexpected. Gradually improving demand and export conditions, combined with a significant decline in domestic gas production event in Western Canada, has rapidly shifted the market from substantial to slight oversupply in a matter of months. This has reduced downward pressure on prices and created conditions that might lead to a more manageable storage level before the next heating season gets underway. In today’s RBN blog, we consider what has been generating the rapid shift in Canadian gas market balances this summer.

This year, the Canadian gas market has been suffering much of the same warm-winter hangover issues affecting the U.S. natural gas market. The most recent heating season was something of a bust in terms of being less frigid than average in key space-heating regions, leaving gas storage levels above average by the end of March 2023. In the case of Canada, this was set against the backdrop of rising domestic production in Western Canada and gas exports to the U.S. that had been running below average thanks to the warm winter. When you’ve got too little demand, rising supplies and reduced exports, the end result, naturally, is an oversupplied market when compared to historical averages.

Of course, this is not the first time — and won’t be the last — that the Canadian gas market has had to deal with an oversupply (or undersupply) situation heading into a non-heating season (April to October). We discussed gas market oversupply issues in our two-part series Got Me Under Pressure, where another warm winter (2019-20) had left the 2020 Canadian gas market too long on gas. As we suggested in that blog, the market took most of the oversupply that year and used it to send Canadian gas storage to record levels by the end of October. In East Bound and Down, we looked at the opposite situation of an undersupplied market thanks to the cold winter of 2021-22, considering the potential for storage levels that could be lower than average in both Eastern and Western Canada by the end of October 2022. As it turns out, storage levels in the east did not fall quite as low as we thought could happen, but the west did start the 2022-23 heating season at lower-than-average levels, as we had suggested.

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