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CALGARY — Pure gasoline producers in Western Canada have white-knuckled it by way of months of depressed costs, with the expectation that their fortunes will enhance when LNG Canada comes on-line in the midst of subsequent yr.
However the provide glut plaguing the trade this fall is so giant that not everyone seems to be satisfied the huge facility’s impression on pricing can be as dramatic or sustained as as soon as hoped.
Because the colder temperatures set in and Canadians activate their furnaces, pure gasoline producers in Alberta and B.C. are lastly beginning to see some enchancment after months of low costs that prompted some firms to delay their development plans or shut in manufacturing altogether.
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“We’ve just about been as little as you’ll be able to go on pure gasoline costs. There have been days when (the Alberta pure gasoline benchmark AECO value) was primarily pennies,” mentioned Jason Feit, an advisor at Enverus Intelligence Analysis, in an interview.
“As a producer, it could not be financial to have produced that gasoline . . . It’s been fairly nugatory.”
Prior to now week, AECO spot costs have hovered between $1.20 and $1.60 per gigajoule, a big enchancment over final month’s bottom-barrel costs however nonetheless effectively under the 2023 common value of $2.74 per gigajoule, in keeping with Alberta Power Regulator figures.
The bearish costs have come on account of a mix of elevated manufacturing ranges — up about six per cent year-over-year thus far in 2024 _as effectively as final yr’s delicate winter, which resulted in much less pure gasoline consumption for heating functions. There may be now an oversupply of pure gasoline in Western Canada, a lot in order that pure gasoline storage capability in Alberta is basically full.
Mike Belenkie, CEO of Calgary-headquartered pure gasoline producer Benefit Power Ltd., mentioned firms have been ramping up manufacturing despite the poor costs as a way to get forward of the opening of LNG Canada. The large Shell-led venture nearing completion close to Kitimat, B.C. can be Canada’s first large-scale liquefied pure gasoline export facility.
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It’s anticipated to begin operations in mid-2025, giving Western Canada’s pure gasoline drillers a brand new marketplace for their product.
“In sensible phrases everybody’s conscious that demand will enhance dramatically within the coming yr, due to LNG Canada . . . and because of that line of sight to elevated demand, a number of producers have been rising,” Belenkie mentioned in an interview.
“And so we have now this momentary time period the place there’s extra gasoline than there may be locations to place it.”
In gentle of the present depressed costs, Benefit has began strategically curbing its gasoline manufacturing by as much as 130 million cubic ft per day, relying on what the spot market is doing.
Different firms, together with giants like Canadian Pure Sources Ltd. and Tourmaline Oil Corp., have indicated they may delay gasoline manufacturing development plans till situations enhance.
“We reduce all our gasoline development out of 2024, as soon as we’d had that delicate winter. We did that again in Q2, as a result of this isn’t the best yr to convey incremental molecules to AECO,” mentioned Mike Rose, CEO of Tourmaline, which is Canada’s largest pure gasoline producer, in an interview this week.
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“We moved all our gasoline development out into ’25 and ’26.”
LNG Canada is anticipated to course of as much as 2 billion cubic ft (Bcf) of pure gasoline per day as soon as it reaches full operations. That represents what can be a big drawdown of the present oversupply, Rose mentioned, including that’s the reason he thinks the longer term for western Canadian pure gasoline producers is vibrant.
“That sink of two Bcf a day will logically take three-plus years to fill. After which if LNG Canada Section 2 occurs, then clearly that’s much more optimistic,” Rose mentioned.
Whereas Belenkie mentioned he agrees LNG Canada will raise costs, he’s not as satisfied as Rose that the advantages can be sustained for an extended time period.
“Our considering is that markets can be wholesome for six months, a yr, 18 months — no matter it’s — after which after that 18 months, as a result of costs can be wholesome, provide will develop and possibly overshoot demand once more,” he mentioned, including he’s annoyed that extra firms haven’t achieved what Benefit has achieved and curtailed manufacturing in an effort to restrict the oversupply available in the market.
“Frankly, we’ve been very upset to see how few different producers have chosen to close in with gasoline costs this low. . . you’re principally dumping gasoline at a loss,” Belenkie mentioned.
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Feit, the analyst for Enverus, mentioned there’s little question LNG Canada’s opening can be a serious milestone that may assist to assist pure gasoline pricing in Western Canada. He added there are different Canadian LNG tasks within the works that may additionally present a lift within the longer-term, akin to LNG Canada’s proposed Section 2, in addition to potential elevated demand from the proliferation of AI-related information centres and different power-hungry infrastructure.
However Feit added that producers have to be disciplined and permit the market to steadiness within the near-term, in any other case provide ranges might overshoot LNG Canada’s capability and durations of depressed pricing might reoccur.
“Clearly promoting gasoline at pennies on the greenback shouldn’t be a sustainable enterprise mannequin,” Feit mentioned.
“However there’s an previous trade saying that the treatment for low gasoline costs is low gasoline costs. You realize, ultimately firms should curtail manufacturing, they should make changes.”
This report by The Canadian Press was first revealed Oct. 25, 2024.
Corporations on this story: (TSX:TOU; TSX:AAV, TSX:CNQ)
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