While observers of Alberta’s economy have been captivated by the widening (and now narrowing) price differential of crude oil, the price for that other hydrocarbon has been quietly staging a comeback.
Natural gas—once the primary driver of Alberta’s energy economy—had seen its price collapse a few years ago largely due to a massive increase in American supply. Between 2011 and 2012, the North American benchmark price had dropped from over $US 5.00 per mmBtu to below US 2.00/mmBtu. Alberta producers (who receive a somewhat discounted price on account of transportation costs) were devastated.
But over the last year, the continental benchmark price as set by traders at the New York Mercantile Exchange (NYMEX) has been moving slowly but steadily higher. In recent days it has broken the $US 4.00/mmBtu price level, the first time in nearly two years. Higher demand for natural gas in the U.S. due to unseasonably cool weather has drawn down natural gas inventories across North America, which has pushed prices higher. Demand has also risen because of the increase in gas-fired electricity generation in the U.S.
Still, producers in our province haven’t been popping too many champagne corks. Because natural gas production in Alberta is relatively expensive, prices remain too low to stimulate much increased activity. Most producers in our province require prices above $US 5.00/mmBtu to jumpstart a lot of new drilling and production.
If gas prices continue to climb, however, we may not be too far away from a new era of gas production in Alberta.*
*Courtesy of Todd Hirsch, Senior Economist, ATB Financial