Regardless of hovering world demand for pure fuel, Canadian producers are combating unstable costs and deep reductions at Alberta’s AECO hub, one of many largest storage amenities in North America and the place the benchmark value for Canadian fuel is about.
In August the spot AECO value briefly turned detrimental, and this week producers Tourmaline Oil and Kelt Exploration Ltd stated they briefly lower manufacturing as a consequence of weak costs.
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WHY ARE AECO PRICES LOW?
Canadian producers have been combating unstable pricing for years due to tight capability on pipelines transport fuel from Alberta and British Columbia to North American markets. The issue tends to worsen each summer time when pipeline upkeep work reduces capability.
The principle system gathering and transporting fuel out of western Canada is TC Power’s Nova Fuel Transmission Line (NGTL), which delivered 12.5 billion cubic toes a day (bcf/d) in 2021, accounting for round 75% of Canada’s general manufacturing.
Rising manufacturing, NGTL upkeep and a few fuel processing amenities’ outages this summer time left fuel molecules bottlenecked in Alberta, driving down the spot value for interruptible pipeline service. Prospects with agency service contracts have been unaffected.
Since late August, the value has recovered to commerce at $3.50 per million British thermal items. However the low cost to U.S. benchmark Henry Hub costs, which analysts say must be round $1 to replicate the transportation price, continues to be greater than $5.
HOW DOES THIS IMPACT PRODUCERS?
Many Canadian producers have entered into ahead contracts to hedge their dangers or promote immediately into different markets akin to Ontario’s Daybreak hub.
In a current Nationwide Financial institution analysis be aware titled “AECO is Lame,” analysts estimated on common solely 15% of producer revenues are uncovered to western Canadian costs.
Nonetheless, low costs end in misplaced royalty revenues for the Alberta authorities and deter capital funding, producers stated.
DOES ANYONE BENEFIT?
Fuel and electrical energy customers in western Canada and enormous industrial customers like oil sands firms and Alberta’s petrochemical sector have cheaper payments as a consequence of low costs.
COULD THE REGULATOR STEP IN?
The CER is monitoring the scenario, its chief economist Jean-Denis Charlebois advised Reuters, however won’t intervene with out being requested by events concerned.
In 2019, when AECO costs endured a longer-lasting droop, the regulator enacted a protocol that allowed shippers to place extra fuel into storage and keep away from promoting it at very low costs. That protocol expired on the finish of 2020.
The CER is open to serving to enhance the scenario, whether or not that be by way of listening to revised tariff proposals to conducting workshops to assist communication between events, he stated.
WHAT DOES TC ENERGY SAY?
TC Power attributed the deep AECO low cost to considerable western Canadian provide and restricted pipeline house, and stated the answer is to construct further capability for agency service contracts.
TC is working so as to add 1.3 billion cubic toes a day (bcf/d) of capability in 2022 and one other 2.2 bcf/d between 2023 and 2026, however has been delayed by climate, labor shortages, rising environmental necessities and regulatory and authorities delays, a spokesperson added.
(Reporting by Nia Williams; Enhancing by Lisa Shumaker)