‘AECO is back in the game, baby’: 400% spike in Alberta natural gas prices piques investors’ interest


CALGARY — A one-month, triple-digit rally in Alberta natural gas prices is piquing the interest of investors, executives say, amid falling inventories and improved market access.

“I wouldn’t say there’s been a 180 degree shift in sentiment yet,” said Advantage Oil and Gas Ltd. president and CEO Andy Mah, but he noted that the industry is finally seeing some “green shoots” as a result of better access to natural gas storage facilities and a bullish supply/demand balance heading into the winter heating season.

Mah said he has been getting some “inbound inquiries” from investors that haven’t been in the Canadian gas sector for the past two years, underscoring the potential of a gas recovery in the province.

Investors are likely taking note of the massive rally in AECO, the Alberta benchmark price set at the storage and trading hub of Empress, Alta. along the Saskatchewan border. Between Sept. 17 and Thursday, AECO has skyrocketed 422 per cent from 45 cents per thousand cubic feet to $2.35 per mcf on Thursday, according to Bloomberg data.

Natural gas prices are up nearly 77 per cent year-to-date but have repeatedly fallen below $1 per mcf over that period. AECO prices started the year at $1.33 per mcf in January, traditionally seen as the middle of the high-demand winter heating period, peaking around  $3 per mcf in February before collapsing in the summer, Bloomberg data shows.

Gas Alberta Inc., which provides natural gas to 74 gas distribution utilities in the province and sources its data from ICE NGX on its website, shows prices have surged around 292 per cent over the past 30 days.

The rally has buoyed the spirits of many embattled natural gas producers that had been forced to scale back their drilling plans and were allowing their production to decline in the face of prices that fallen to as low as 4 cents in late May and 7 cents in early June.

“Interest has piqued a little bit,” Peyto Exploration and Development Corp. president and CEO Darren Gee said of investors taking another look at the Canadian gas sector. “We feel like we have a fighting chance” to compete with other natural gas producers in the U.S., he said.

Earlier this month, Gee published a report to shareholders called “AECO is back in the game, baby!”

Gee’s report predicted a bull market over the winter as “AECO storage levels are already dangerously low and will be completely empty when we get around to refilling them next summer.”

“Empty supplies this winter, followed by stronger demand next summer to refill storage, and then an expanded system in 2021 will ensure AECO will be a fair-gas market once again,” he wrote.

I don’t perceive anybody will be going out to drill their brains out

The price of the commodity has been highly volatile as producers argued that a protocol put in place in the middle of 2017 by TC Energy Corp. created difficulties in accessing natural gas storage.

Gas prices had been steadily rising and then hit an inflection point at the beginning of October, when the Canada Energy Regulator approved an application championed by the Alberta government and supported by both the gas producers and TC Energy to revert to the old method.

The decision has propelled AECO gas prices and close the gap on Henry Hub natural gas prices in Louisiana, according to AltaCorp Capital data.

The Canadian gas sector is entering withdrawal season (first week of November) below the five-year low, with storage levels 27 per cent below the five-year average in a bullish scenario, analysts at the Calgary-based investment firm wrote in a research note on Oct. 11.

Despite the improved fundamentals, AltaCorp Capital maintained its forecast for AECO prices at $1.70 per mcf through next April, which marks the end of the winter heating season.

Gas producers are also not getting carried away by the rally.

“I don’t perceive anybody will be going out to drill their brains out,” Mah said.

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