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    Alberta Gas Producers Seek Action From Province


Offer to voluntarily cut production during pipeline restrictions

by: Dale Lunan

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Alberta Gas Producers Seek Action From Province

A cohort of nine gas producers – collectively representing some 2bn ft3/day of output – have appealed directly to Alberta premier Jason Kenney for government action to address the crisis facing the province’s natural gas industry.

In an open letter sent to Kenney on July 16, the CEOs of Jupiter Resources, Bellatrix Exploration, Peyto Exploration & Development, Pine Cliff Energy, Advantage Oil & Gas, Canlin Energy, Paramount Resources, Bonavista Energy and Modern Resources say the Alberta industry is facing a crisis which could see widespread corporate failures among producers hampered by low commodity prices at the AECO trading hub and strained balance sheets.

In June, according to Canadian Gas Association statistics, the Alberta market price for natural gas averaged just C$0.74/GJ, about half the May average and well below the five-year average June maximum of C$4.39/GJ. At times in June, when maintenance on TC Energy’s Nova Gas Transmission Limited (NGTL) system restricted producers’ access to storage, the AECO price actually fell into negative territory: on June 20, for example, producers had to pay spot market customers C$0.11/GJ to take gas off their hands.

Peyto CEO Darren Gee looks at it another way in his July President's Report: the price at AECO has averaged C$1.56/GJ since August 2017, while the price at Empress, just across the border in Saskatchewan, has averaged C$2.75/GJ since August 2017. The regulated toll between the two points is C$0.18/GJ, which suggests Alberta producers have left more than C$1.00/GJ on the table for every molecule of gas sold at the AECO price.

“We implore the government of Alberta to take swift and decisive action to restore a balanced and orderly market for AECO in order to capture a fair market price for Albertans’ natural gas resource and, at the same time, help avert a crisis in the natural gas sector which could result in widespread corporate failures, significant job loss and a further deterioration in investor confidence that will impair the Alberta gas sector’s ability to participate in any future recovery,” the letter says.

And while the industry itself is divided over how the problem should be addressed – some suggest direct intervention by the government, others say the market should be allowed to work – the producers have pitched a plan to Dale Nally, the province’s associate minister of natural gas, to voluntarily restrict their own production when maintenance work on the NGTL system restricts access to storage.

In return, producers would receive royalty credits.

The proposal, the letter says, would achieve the twin objectives of restoring balance to the Alberta gas market at no cost to Alberta’s royalty revenues while still honouring producers’ existing marketing commitments.

“It is imperative that the government of Alberta intercedes as the viability of the Alberta natural gas sector is in jeopardy and on our current trajectory the consequences will be dire for the many Albertans that rely upon the natural gas sector directly and indirectly to support their communities,” the letter says.