Better pricing has natural gas sector feeling optimistic

By COLLIN GALLANT on February 26, 2021.

cgallant@medicinehatnews.com@CollinGallant

The mood among natural gas producers in the province is greatly improved, says the head of one major company with operations in southeast Alberta, as better pricing from last year carries into 2021.

But that’s after a rough few years of depressed prices, cost cutting and severe contraction and bankruptcies in the sector.

However, Phil Hodge at Pinecliff Energy says companies like his and others, which survived gas prices plummeting to historic lows two years ago, are more stable heading forward.

“(Pricing environment in 2020) was way better than 2019, but that was the low point,” said Hodge, whose company has major dry gas operations in the southeast corner and southwest Saskatchewan.

“And 2021 feels a full step better, but you can’t blame anyone for feeling gun shy considering the last four years.”

Pinecliff stated in its year-ahead guidance this month it expects gas to remain in the $2.80 per gigajoule range for the next two years.

That’s hardly red hot territory, but about a dollar more, or 50 per cent higher, than recent price trends.

Currently, prices have also been charged by cold weather and rocketing demand across much of North America.

The top administrator at Medicine Hat’s energy division says the run on gas is welcome, but doesn’t change their long-term outlook, or a plan to permanently close most of its wells.

“We consider that they would be episodic runs on gas (pricing), but we expect it to normalize,” said Brad Maynes, managing director of the city’s energy and utilities division.

“We still believe, in the long term, there’s still a lot of gas in Western Canada.”

He says the city, in general, welcomes higher gas prices in terms of regional economic activity and the effect on its remaining production.

After a current round of 2,000 well abandonments, the city will retain several hundred wells closest to Medicine Hat, where production remains high, and therefore generally economic.

However, surface and down-hole abandonments are set to ramp up in Alberta this spring.

Hodge as well says the current environment isn’t good enough to save low-production wells across the province that are being considered for permanent closure.

But, if conditions maintain, demand continues to grow in utilities sector and exploration remains light, the gas sector can stabilize.

“I’m hoping it will stop the bleeding, and that (companies) are now in decent shape,” he said.

The AECO daily spot price for gas in Alberta was $3.01, well above the 365-day average of $2.40.

Analysts have also said supply is lower due to the effect of gas-oil production having been shut in during an oil price shock last spring.

That situation may change however, as oil prices return to normal and production comes back.

Western Canada Select crude prices were at US$51 per barrel this week, up US$14 since the start of the year.

Pinecliff Energy also announced its a $13-million capital budget for 2021 that includes two new wells in central Alberta. It will receive about $4 million from provincially administered federal funds to accelerate abandonments, and spend $1.5 million in company funds.

The News revealed last week that Medicine Hat has been approved for about $5 million in abandonment funds for its Alberta and Saskatchewan portfolio.