Market Snapshot: Strong Global Demand and Tight Supply Has Led to Highest North American Natural Gas Prices in Years

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Release date: 2021-12-01

Global natural gas prices have increased to record levels of over $30 USD/MMBtuDefinition* (or $39 CAD/GJDefinition*)Footnote 1 in late 2021, which is over seven times higher than Canadian gas prices trading at Alberta’s main gas trading hub, Nova Inventory Transfer (NIT)Definition*. The increase in global natural gas prices has been driven by a high demand from Asia, South America, and Europe, while growth in global natural gas production and liquefied natural gas (LNG) supply has not kept up. Natural gas prices at major U.S. and Canadian hubsDefinition* have also risen substantially in recent months to levels not seen in years.

Figure 1: Western Canadian natural gas prices (AB-NIT) with the North American benchmark price (Henry Hub)Definition*

Source and Description

Source: S&P Global Platts Data

Description: This graph displays two lines showing monthly natural gas prices at two North American Hubs: Henry Hub and Alberta-Nova Inventory Transfer (AB-NIT). In November 2021, natural gas spot prices at Henry Hub rose to $6.12 CAD/GJ, $4.82 CAD/GJ at AB-NIT.

In 2021, natural gas consumption in Canada and the U.S. remained relatively steady compared to 2020. However, record levels of liquefied natural gas (LNG) exportsFootnote 2 from the U.S. and growing pipeline exports to Mexico in summer 2021Footnote 3 increased the demand for Canadian and U.S. natural gas supply. At the same time, total CanadianFootnote 4 and U.S. natural gas productionFootnote 5 remained below 2019 levels through the summer of 2021. All of this contributed to western Canadian natural gas prices increasing to levels not seen since the winter of 2014 (see Figure 1).

Prices in western Canada and Henry Hub rose together from March to July 2021, but from late summer and fall of 2021, spot pricesDefinition* for western Canadian natural gas diverged from Henry Hub. This is shown in the grey bar chart of Figure 2 by the widening price difference between Henry Hub and AB-NIT during August and September.

Figure 2: The Henry Hub-AB-NIT Differential has been rising since March 2021

Source and Description

Source: S&P Global Platts Data

Description: This combination chart displays a combination chart including the monthly prices of Henry Hub and AB-NIT from March 2021 to November 2021 as lines. Henry Hub and AB-NIT grew from $3.06 CAD/GJ and $2.60 CAD/GJ in March 2021 to $4.53 CAD/GJ and $3.70 CAD/GJ in July. After July, prices at Henry Hub continued to grow to $4.82 CAD/GJ while prices at AB-NIT fell $2.99 CAD/GJ in August. The grey bar chart shows the price difference between Henry Hub and AB-NIT which increased from $0.46 CAD/GJ in March to $1.84 CAD/GJ in August and $2.62 CAD/GJ in September.

Western Canadian prices diverged from Henry Hub prices during August and September. This was tied to natural gas supply on western Canadian pipeline systems exceeding pipeline capacity to deliver gas to customers or export points. Capacity was reduced on certain segments of these pipeline systems due to the work being undertaken in August through October (e.g. planned maintenance and system upgrades). In particular, reductions took effect at a time where demand to access the Nova Gas Transmission Ltd. (NGTL) System, western Canada’s largest pipeline system, was very high. NGTL’s receipts reached an all-time high of up to 12.7 billion cubic feet per day (Bcf/d) on several days in August. Similar price gaps developed from 2015 to 2019 when supply on western Canadian pipelines exceeded their capacity to deliver natural gas to customers or to export.

Overall, Canadian and U.S. natural gas prices have risen with global prices in recent months, suggesting a more interconnected global gas market. However, western Canadian gas prices are still subject to periodic, regional pipeline constraints.

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