Mark Collins – Canadian Hydrocarbon Heartbreak, Natural Gas Section, or…

…it’s not just oil prices collapsing (plus “Oil price slide drives Canadian dollar to 11-1/2-year low”).  Further to this post,

Canadian Hydrocarbon Heartbreak? Worser and Worser

we return to natural gas, note the fracking factor:

Warm weather, surplus inventory send natural-gas prices plunging 

Natural-gas prices have slumped to their lowest for a December in 17 years, heaping more financial pressure on cash-strapped energy companies trying to cope with the collapse in crude oil.

The industry counts on prices for the fuel climbing in the winter heating season, but a combination of unseasonably warm weather and bloated inventories has pressured the market to the point where wells are being shut off in Canada and the United States. Hopes for a sustained improvement in prices are waning.

A longer-term pressure has been massive growth in shale-gas production in regions such as the Marcellus formation in the northeastern United States, and the industry’s new-found ability to increase output quickly when prices and demand dictate.

“What you see is an alarming accumulation of spare production capacity,” Teri Viswanath, an analyst at BNP Paribas, said in an interview in Calgary. “It’s not just supply in the market that we’re measuring, which is, by the way, at a record level. It’s also … that we have a heavy level of inventories, a measure of supply that can be brought to market quickly.”

On Friday, U.S. benchmark natural-gas futures settled at $1.99 (U.S.) per million British thermal units, down about one-third from a year ago and the lowest for a December since 1998.

Canadian gas has also fallen sharply. Wholesale supply at the AECO storage hub in southeastern Alberta fetched $2.11 (Canadian) per gigajoule, down from $3.12 last year, according to the NGX electronic exchange…

Poor Alberta and pity British Columbia’s LNG export plans (the Asian price of LNG is tied to the price of oil).

Mark Collins, a prolific Ottawa blogger, is a Fellow at the Canadian Global Affairs Institute; he tweets @Mark3Ds


11 thoughts on “Mark Collins – Canadian Hydrocarbon Heartbreak, Natural Gas Section, or…”

  1. Hardly just Canada:

    “Low Natural Gas Prices Squeeze Industry and Fell a C.E.O.

    HOUSTON — Plummeting oil and natural gas prices have whipsawed the energy industry, forcing cancellations of billions of dollars of projects, late payments on loans, and over a quarter of a million layoffs worldwide.

    On Monday, with domestic gas prices hitting their lowest level since 2001, Cubic Energy, a company that produces natural gas and oil, became the latest of several dozen producers to file for bankruptcy protection this year. Even a company the size of Chesapeake Energy, one of the nation’s biggest producers, is struggling to reduce its $11.6 billion debt load.

    Over the weekend, Charif Souki, the chief executive of Cheniere Energy, was unceremoniously dismissed only weeks before the Louisiana natural gas export terminal he conceived and built would send its first shipment — the first of its kind from the lower 48 states.
    Continue reading the main story
    Related Coverage

    At the heart of Mr. Souki’s dismissal was a divergence of views between him and Carl Icahn, the activist investor, over the future of the global natural gas markets, many of which are linked to oil prices that have crashed by nearly two-thirds since the summer of 2014.

    …the market has become so glutted that, many experts say, it is time to consolidate and roll back plans to expand export capacity…”

    Hello B.C.?

    Mark Collins

  2. This is yet another commodity boom-bust cycle. A period of high prices leads to massive over-investment, which in turn leads to over-production and collapsing prices. One of the key things to note is that the demand for many commodities is not all that elastic – lower prices result in only a relatively small increase in demand, at least in the short term. Consequently, relatively small shortages /oversupplies result in dramatic price swings. Another point is that much of the increased production involves high capital costs; this places producers under heavy pressure to sell what they can for what they can get for it – if the bank is threatening to call your loans, you aren’t in a position to reduce production and wait for higher prices.

    The situation will eventually change, among other things, shale oil and gas wells have high decline rates, but, until this happens, the situation will be brutal for the affected businesses/communities/countries.

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