Alberta's natural gas market has experienced significant fluctuations over the past two decades, influenced by various economic and environmental factors. What can you estimate about the future?
It probably doesn't even matter what natural gas prices do if you make informed decisions about your heating, cooling, and solar plans at home. The case for electricity generation at home and electrical heating, however, is very strong if you consider the price protection you get from using these electricity powered technologies. It won't be said again for the rest of this text.
If it can happen, well, it can happen.
Historical Price Trends
In the early 2000s, natural gas prices in Alberta were relatively high, with fixed rates averaging around $6.75 per gigajoule (GJ) in 2006. Prices peaked in 2008 at approximately $8.50/GJ. However, a downward trend ensued, with prices declining to about $5.34/GJ by 2010 and further to $2.74/GJ in 2023, marking a 46% decrease from 2022. Energy Rates, AER
Several factors contributed to these trends:
- Supply and Demand Dynamics: Advancements in extraction technologies, such as hydraulic fracturing, led to increased natural gas production, resulting in oversupply and subsequent price declines.
- Economic Conditions: Global economic downturns, notably the 2008 financial crisis, reduced industrial demand for natural gas, exerting downward pressure on prices.
- Weather Patterns: Mild winters decreased heating demand, leading to lower prices, while harsh winters had the opposite effect.
Recent Developments
In 2024, Alberta’s natural gas prices experienced notable volatility. In September, prices at the AECO hub dropped to as low as 5 Canadian cents per GJ due to nearly full storage capacities and weak demand. This situation prompted some producers to curtail production to stabilize the market. Reuters
Future Price Outlook
Several factors are expected to influence Alberta’s natural gas prices in the coming years:
- LNG Export Capacity: The anticipated commencement of the Shell-led LNG Canada project in 2025 is projected to add approximately 2.1 billion cubic feet per day of export capacity (10% of today’s current stores). This development is expected to increase demand for Alberta’s natural gas, potentially stabilizing and elevating prices. Reuters
- Global Market Dynamics: Alberta’s natural gas prices are increasingly interconnected with global markets. Factors such as geopolitical tensions, global economic conditions, and international energy demand will play significant roles in shaping future prices.
- Environmental Policies: Government initiatives aimed at reducing carbon emissions could impact natural gas demand. Policies promoting renewable energy sources may suppress natural gas demand, while transitional policies could support its use as a bridge fuel.
Assumptions
- Stable Economic Conditions: The analysis assumes no major global economic crises that could drastically alter energy demand.
- Policy Continuity: It is assumed that current environmental policies will continue without significant changes that could impact natural gas demand.
- Technological Status Quo: No major technological breakthroughs are assumed that would significantly disrupt current energy production or consumption patterns.
While Alberta’s natural gas prices have experienced significant fluctuations due to various factors, upcoming developments like increased LNG export capacity and global market dynamics are expected to play pivotal roles in shaping future price trends.
Recent Developments
https://www.reuters.com/business/energy/canadian-natural-gas-firms-eager-lng-boom-swamp-market-with-excess-supply-2024-10-11/?utm_source=chatgpt.com
https://www.reuters.com/business/energy/canadian-natural-gas-prices-fall-two-year-low-storage-fills-2024-09-23/?utm_source=chatgpt.com
Canada
The Alberta natural gas market is distinct from other Canadian provinces due to its position as a major producer and exporter of natural gas, resulting in unique pricing dynamics. Alberta’s prices, centered around the AECO hub, are typically lower and more volatile than those in other regions because of the province’s extensive supply infrastructure and limited domestic demand relative to production capacity. For instance, in provinces like British Columbia and Saskatchewan, natural gas prices are often slightly higher than Alberta’s but are influenced by proximity to Alberta’s production centers and pipelines. Meanwhile, in Eastern Canada, such as Ontario and Quebec, prices are substantially higher, as these provinces rely on imported gas from Alberta and the U.S., leading to increased transportation and distribution costs. Additionally, provinces with higher reliance on long-term fixed-rate contracts, such as Manitoba, experience less price volatility compared to Alberta, where spot market pricing plays a larger role. Alberta’s anticipated integration into global LNG markets is poised to further differentiate its market dynamics, contrasting with regions where domestic consumption dominates pricing influences. Overall, Alberta’s natural gas utility market reflects its role as a production hub, whereas other provinces are shaped more by consumption patterns and their reliance on imports.
More About LNG (daring!)
I am not an economist. Is anyone, really?
The LNG Canada project and similar LNG export initiatives are likely to have a significant effect on commodity energy pricing at the retail level in Canada, particularly in Alberta and western provinces. Here is a detailed breakdown of the anticipated impacts:
Increased Demand for Natural Gas
- The LNG project will export natural gas from Alberta and British Columbia to international markets, primarily in Asia. This creates a new, large demand channel for Canadian natural gas producers.
- Increased competition for natural gas supply is likely to push up wholesale commodity prices at the AECO hub (Alberta’s main pricing point).
- Over the next 3-5 years, retail commodity prices could see a gradual 10-20% increase due to this new demand, depending on the scale of LNG exports.
Tightened Supply for Domestic Consumption
- LNG exports will divert a portion of Canada’s natural gas supply to international buyers, tightening domestic availability, particularly during peak demand periods like winter.
- In provinces reliant on spot market pricing, such as Alberta, there will likely be upward price volatility, especially in colder months when domestic demand is high.
- Short-term price spikes could occur, with winter pricing potentially increasing 20-30% above current seasonal averages.
Price Disparities Between Regions
- Alberta, as the production hub, will face earlier and sharper increases in wholesale prices due to direct exposure to LNG exports. However, eastern provinces like Ontario and Quebec, which rely on long-term supply contracts and imports from Alberta/U.S., may experience a delayed but moderate price impact.
- Price disparities will widen between regions, with Alberta and B.C. seeing faster retail price increases than provinces with fixed-rate contracts or alternative supply sources.
- Over time, commodity prices in Ontario and Quebec could rise by 5-10%, while Alberta may experience 10-20% increases at the retail level.
Increased Investment in Infrastructure
- Higher natural gas prices incentivize producers to invest in production infrastructure (pipelines, storage, and drilling) to meet growing domestic and export demands.
- While these investments may stabilize long-term supply, the associated costs may pass through to consumers via higher distribution and transmission fees, further increasing retail prices.
- Infrastructure costs could add 1-3% to retail bills over the next 5-7 years.
Global Price Linkages and Volatility
- LNG exports tie Canadian natural gas prices to global benchmarks (e.g., Japan Korea Marker [JKM] or Henry Hub). Global events like geopolitical tensions, energy crises, or shifts in Asian demand will ripple into Canadian pricing.
- Retail energy prices in Canada, particularly in Alberta, will become more sensitive to international price swings.
- Higher global demand during events like energy shortages could amplify short-term price volatility by 15-25%.
The LNG project will cause upward pressure on commodity energy pricing at the retail level in Canada, especially in Alberta and western provinces. Specifically:
- Alberta and B.C.: Retail natural gas prices could rise 10-20% over 3-5 years due to increased demand and tighter supply.
- Eastern Provinces: Retail prices may increase more moderately, by 5-10%, with slower exposure to LNG driven supply changes.
- Volatility: Consumers in spot-price-based regions, particularly Alberta, will experience more frequent price spikes, especially in winter months.
While the LNG project will bring economic growth and higher producer revenues, it is expected to increase retail energy costs for consumers due to international competition for Canada's natural gas.
The Natural Gas (Domestic) Apocalypse
The absolute worst-case scenario for consumer natural gas prices in Canada, particularly in Alberta and other regions tied to LNG export markets, would arise under a perfect storm of adverse economic, geopolitical, and domestic conditions. In this scenario, several compounding factors would drive prices to unprecedented highs:
Severe Domestic Supply Shortages
- LNG exports divert a significant portion of domestic supply to international markets. Meanwhile, natural gas production growth fails to keep pace due to:
- Limited upstream investment in exploration and infrastructure.
- Regulatory or environmental restrictions slowing production growth.
- Technical challenges or delays in production projects.
- Domestic natural gas availability becomes severely constrained, especially during peak demand seasons (winter). With supply insufficient to meet domestic needs, wholesale prices skyrocket.
- Wholesale prices could surge to $15–$20 per GJ, well above historical averages of $2–$6 per GJ.
Global Energy Crisis and LNG Price Linkages
- A global energy shortage, triggered by geopolitical events (e.g., war disrupting natural gas pipelines) or extreme demand spikes (e.g., severe winters in Europe and Asia), causes international LNG prices to soar. Since Alberta’s natural gas is now linked to global LNG markets, domestic prices follow global trends.
- LNG benchmarks like JKM could exceed $50–$70 USD per MMBtu (historically seen in 2022).
- Domestic buyers, especially in Alberta and B.C., face extreme competition for supply, causing domestic retail prices to climb steeply to match international benchmarks.
- Spot market prices for natural gas could triple or quadruple, driving retail consumer prices up 50–100% year-over-year.
Infrastructure Failures or Bottlenecks
- Pipeline outages, insufficient storage capacity, or delays in infrastructure expansion result in bottlenecks that prevent the flow of natural gas to consumers.
- Pipeline disruptions like those seen in TransCanada’s NGTL system or unplanned maintenance on key transmission lines.
- Bottlenecks restrict supply delivery to domestic consumers, exacerbating shortages and intensifying price spikes, especially during high-demand periods.
- Localized wholesale prices could spike to $30–$40 per GJ, with immediate trickle-down effects on retail pricing.
Prolonged Severe Weather Events
- Extended, frigid winters or heat waves create abnormally high demand for natural gas for heating or electricity generation.
- Alberta and other provinces reliant on natural gas for electricity would see dual demand pressures (heating + power generation).
- Retail prices could surge due to soaring demand and tightened supply, further exacerbated by LNG-driven export priorities.
- Residential consumers could see bills double or triple during winter months, depending on the severity and duration of weather conditions.
Regulatory and Policy Shocks
- Governments implement strict carbon pricing, emissions caps, or disincentives for natural gas production as part of climate targets. This could:
- Reduce producer investment in natural gas.
- Increase costs for production and distribution, passed down to consumers.
- Combined with constrained supply and LNG export pressure, policy changes would create a structural upward shift in prices.
- A 30–50% sustained increase in retail prices could occur as carbon costs are embedded into pricing.
Absolute Worst Case Consumer Price
1. Wholesale prices could spike to $20–$40 per GJ in Alberta and B.C., compared to historical averages of $2–$6 per GJ.
2. Retail consumer prices could double or triple, resulting in monthly natural gas bills rising from $100–$200 to $300–$600 during winter months for typical households.
3. Sustained price increases of 50–100% could become the new baseline for retail prices, with periodic volatility and extreme seasonal spikes.
In the absolute worst-case scenario, Canadian consumers—particularly in Alberta and western provinces—would bear the brunt of natural gas shortages, global price pressures, and policy-driven cost increases. Retail natural gas prices could surge to unsustainable levels, with monthly bills tripling during peak demand seasons. This outcome underscores the importance of balancing LNG export growth with domestic supply security and infrastructure resilience.
Feel free to reach out to us if you have any questions about the modelling or would like guidance on the best energy-efficient upgrades for your home!
P.S. The Greener Homes Grant Loan is still going strong! $40,000, zero percent, 10 years – complete energy efficiency upgrades on your home and pay later. Savings on your bill today!
Learn more: CEIP Frequently Asked Questions: https://ceip.abmunis.ca/frequently-asked-questions/