Long winter a boon for Canadian gas producers

The exceptionally ugly winter has helped drive up natural gas prices in North America and improved the financial outlook for Canadian gas producers, says the Conference Board of Canada.

In 2013, natural gas prices increased for the first time since 2008.

“Natural gas prices briefly reached record highs at the start of the year, which will help industry revenues this year,” says Michael Burt, Director, Industrial Economic Trends. “However, some of the heat in the natural gas markets will ease as the weather gets warmer.”

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Higher North American gas prices will support a return to profitability for the industry. Following two years of losses, the industry is expected to post a pre-tax profit of approximately $220 million in 2014.

In the last quarter of 2013, the natural gas benchmark in Alberta averaged US$3.4 per million British thermal units (mmbtu), a 40% increase from the $2.4 per mmbtu in 2012. Prices are expected to experience a correction this summer, and although they will remain higher than in recent years, they are not expected to return to the peaks they reached in the mid-2000s.

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Despite the improvements in prices, a recovery in Canadian natural gas production is unlikely in the short term. Growth in natural gas production in the United States continues to be the main detractor from the Canadian natural gas extraction industry. The development and proliferation of new extraction technologies has reversed the decline in U.S. gas production and U.S. imports have fallen.

Canadian producers are increasingly looking toward Asian markets as an important source of growth, but are constrained by a lack of infrastructure. Drilling activity in Canada will remain weak, and output is expected to decline steadily over the forecast period.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.