Western Canada cold snap continues, driving up demand, lower production

An extended cold snap has led to production freeze-offs and strong gas storage withdrawals in Canada, yet prices remain static despite bullish fundamentals.

Despite an exceptionally strong cold snap across Western Canada now forecast to last 16 days and the resulting sharp drawdown in natural gas inventories, the AECO summer 2022 strip remains largely unchanged. NGTL pipeline system constraint driven weakness still drives the market, according to S&P Global Platts Analytics.

All of Alberta and most of British Columbia and Saskatchewan, along with parts of Manitoba and Ontario went under extreme cold weather warnings to end December. Temperatures in Calgary are forecasts to average minus 4 degrees Fahrenheit through Jan. 8, according to Environment Canada. The cold snap is now forecasted to last well into mid-January, stretching across Western Canada. The latest forecast by the government agency shows a high probability of below-normal temperatures in Western Canada through March. British Columbia has the greatest probability of being colder than average.

NGTL production remained at 12 Bcf/d this past weekend, well below the 12.7 Bcf/d averaged the two-weeks prior to the cold snap, according to Platts Analytics. After falling sharply during the peak of the cold snap, exports to the Midwest have resumed their multiyear high levels.

The return of production would help lower withdrawals. However, continued high demand and strong exports mean strong withdrawals are likely to continue through at least the end of the week. Despite summer 2022 now looking tighter than previously expected, the AECO summer 2022 basis strip has barely budged, and even declined in recent days.

The 2022 summer strip fell about 10 cents/MMBtu over the final week of 2021.

The recent decline might be due to market expects that strong production in summer 2022 will drive IT restrictions and cut how much can be injected, making how much room there is in storage largely moot. This all could drive up the AECO winter 2022-2023 strip price. If injections are a fixed amount this coming summer like they were in the summers of 2017, 2018 and 2019, then this winter's end-of-season inventory may largely determine where storage starts next winter, according to Platts Analytics.