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AECO hub prices remain low despite LNG Canada start

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Western Canada faces natural gas supply glut

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Producers delay new wells amid market imbalance

By Amanda Stephenson and Curtis Williams

CALGARY, July 9 (Reuters) -

Last month's start-up of LNG Canada, the country's first

large-scale liquefied natural gas export facility, has failed to

lift Western Canadian natural gas prices as quickly as some

market participants and observers expected, due to a persistent

supply glut and the gradual pace of the facility's ramp-up.

Shell-led LNG Canada shipped its first cargo of 70,000

metric tons from the country's Pacific coast on June 30, to

South Korea.

The export facility, located in northern British Columbia, is

anticipated to bring 2.1 billion cubic feet per day (bcfd) of

new gas demand to Western Canada, and help gas prices recover

from an extended period of weakness from oversupply and warmer

winters that have reduced home heating demand.

That boost to prices has yet to materialize. While prices at the

Alberta Energy Company (AECO) storage hub have come off last

year's lows of 5 cents per million British thermal units, it is

still hovering around $1.10 per mmBtu, approximately a third the

value of the U.S. Henry Hub benchmark price, according to LSEG

data.

"We're probably a dollar off where we thought in January

we'd be," said Chris Carlsen, CEO of gas producer Birchcliff

Energy ( BIREF ).

The recent downward trend in the forward price curve for

Western Canadian gas indicates the market believes it may now

take longer than previously expected to draw down supply, said

Trevor Rix, director of intelligence with Enverus.

IMBALANCE IN THE SYSTEM

Producers have been ramping up output in expectation of LNG

Canada coming online, Rix said.

LNG Canada, the first of a handful of Canadian LNG

projects, in late June started up Train 1, which has a capacity

of 6.5 million tonnes per annum (mtpa), or half of the total

output of the facility when the second train comes online.

Canadian gas production hit a record high in 2024, averaging

18.35 bcfd, according to statistics from the Canada Energy

Regulator. For the first quarter of 2025, production averaged

19.24 bcfd, which would result in record production this year if

the trend continues.

Gas storage capacity in Western Canada is essentially full,

at 635 billion cubic feet in inventories.

LNG Canada has been using under 400 million cubic feet per

day, well below the first train's design capacity because of a

problem with one of the lines at Train 1, two people familiar

with the plant's operation told Reuters.

Repairs are under way and Train 1's production is expected

to increase over the next three weeks, putting full output of 1

billion bcfd closer to the end of August, the people said. The

second train is not expected to achieve full production until

next year.

It is normal for LNG facilities to take months to achieve

full production, said Mike Belenkie, CEO of Calgary-based gas

producer Advantage Energy ( AAVVF ).

While he said most Canadian gas drillers have strong enough

balance sheets to ride it out until the market improves, the

extended downturn has weakened companies' abilities to return

capital to shareholders.

"We're instead all in a holding pattern," Belenkie said.

Weather conditions in Western Canada this summer are also

contributing to the gas oversupply, as fewer extreme heat days

have meant less demand for air conditioning.

There are approximately 200 drilled but uncompleted wells in

British Columbia's Montney gas-producing region currently, about

double the norm, according to Enverus data.

That is a sign producers have recognized the imbalance in

the market and are holding off bringing new wells online until

prices improve, Rix said.