In natural gas markets, warmer-than-average winters often translate into oversupply conditions, as heating demand draws less gas from storage than would normally be expected. When compounded by rapid increases in domestic soft gas production and exports, the result is an even greater oversupply. That’s exactly how the Canadian gas market ended the most recent heating season, facing a substantial oversupply of gas that, if it persists, could cause domestic gas storage to reach capacity well before the start of the next heating season. However, when it comes to natural gas markets, or any other market, expect the unexpected. Gradual improvement in demand and export conditions, combined with a significant decline in the domestic gas production event in western Canada, has quickly shifted the market from a substantial to a slight oversupply in a matter of months. This has reduced downward pressure on prices and created conditions that could lead to a more manageable level of storage before the next heating season begins. In today’s RBN blog, we consider what has been driving the rapid change in Canadian gas market balances this summer.
This year, the Canadian gas market has suffered from much of the same warm winter hangover problems that plague the US natural gas market. The most recent heating season was something of a bust in terms of being cooler than average in key space heating regions, leaving gas storage levels above average at the end of March 2023. In Canada’s case, this came against the backdrop of increased domestic production in western Canada and gas exports to the US that had been below average thanks to the warm winter. When you have too little demand, growing supply, and reduced exports, the end result is naturally an oversupplied market compared to historical averages.
Of course, this isn’t the first time — and it won’t be the last — that the Canadian gas market has had to deal with an oversupply (or undersupply) situation heading into a non-heating season (April to October). We discussed the gas market’s oversupply issues in our two-part series You have me under pressure, where another warm winter (2019-20) had left the 2020 Canadian gas market too long with gas. As we suggested in this blog, the market took most of the excess supply that year and used it to send Canadian gas storage to record levels in late October. In Head east and downwe looked at the opposite situation of an insufficient market thanks to the cold winter of 2021-22, considering the potential for storage to be below average in both eastern and western Canada by the end of October 2022. As a result, storage levels in the east did not drop as low as we thought they might, but the west started at lower levels than the west. ed.
