Low Gas Prices Snuff Canadian Output

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Canada's prime minister convened a response group to discuss the Alberta wildfires, though it was low natural gas prices that prompted energy company Pieridae Energy (Calgary, Alberta) to shut in some production.

Pieridae said Thursday it would shut-in 6,250 barrels of oil equivalent per day (boe/d) that goes to third parties. The company said low prices at the AECO storage hub in Alberta, to which the benchmark for Canadian natural gas is pegged, made production of sour gas uneconomical.

"Pieridae continually evaluates the economic performance of its producing assets to optimize net operating income during periods of sustained low commodity prices," a company statement read.

The AECO hub consists of two storage facilities, though the actual pricing point, AECO-C, is a virtual entity. Priced in gigajoules, the Alberta Energy Regulator reported that AECO-C was already under strain, dropping 46% from 2022-23.

The differential between Henry Hub, the U.S. benchmark, and AECO-C was around $0.52 (USD) per million British thermal (mmBtu) units last year. Henry Hub, along with the other price benchmarks, has been notably depressed on the back of high natural gas inventories.

Henry Hub was trading at around $2.06 per mmBtu on Friday. U.S. natural gas prices flirted with $10 per mmBtu in 2022 in response to the loss of Russian supplies in Europe because of sanctions imposed for its invasion of Ukraine.

Markets have long since adjusted to the loss of Russian products and producers are feeling the strains from what looks like an oversupplied market. Norwegian energy company Equinor (NYSE:EQNR) (Stavanger, Norway), which has helped fill the Russian void in Europe, reported adjusted earnings before tax of $7.48 billion during the second quarter, compared with $7.8 billion a year ago. Lower natural gas prices were partially to blame for the decline in earnings.

Pieridae last year closed its Clearwater gas field in Alberta because of low natural gas prices and high operating costs, but that only sidelined sales volumes of around 500 boe/d. The company in its first quarter release had warned that gas prices were expected to be an ongoing strain, however.

"Forward natural gas prices have continued to weaken, particularly over the recent months, as global demand stagnated through a warmer-than-normal winter season, resulting in expected record storage levels and oversupply," the company said in May.

Pieridae averaged 34,620 boe/d over the three months ending in March.

Elsewhere, concerns remain over the status of the wildfires in Alberta, which have moved in on the resort town of Jasper and the Canadian natural park that bears its name. More than 10,000 people have been evacuated so far, and regional midstream infrastructure is under threat. Parts of the Trans Mountain oil pipeline run through Jasper.

Canadian Prime Minister Justin Trudeau on Thursday convened an incident response group to discuss the fires in Jasper.

"They discussed ongoing safety issues, including the impact on roads, railways, and telecommunication services, and further actions needed to mitigate the impacts of wildfires on local communities and infrastructure," a readout for Trudeau's office stated.

Any air quality concerns stemming from the smoke from the fires in the Canadian Rockies are largely isolated to Canada. Rain is expected across much of Alberta through Saturday, though windy conditions are expected through early next week.

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