Canadian Natural Gas Under Pressure Through October, Simard Says

Canadian natural gas prices will be depressed through October while the crude market is vulnerable to pipeline disruptions, the head of National Bank of Canada’s commodities derivatives business said.

Canadian natural gas prices fell sharply in July after pipeline company TransCanada Corp. (TRP) raised short-term tolls on its cross-country natural gas main line in an effort to get shippers to sign up for long-term contracts. Simard said producers have responded by putting more gas into storage rather than shipping it.

“We are in for six more weeks of ugly pricing” before the onset of the winter season at the end of October means buyers will draw natural gas out of storage for home heating, Tim Simard said today at the Bloomberg Canadian fixed-income conference in New York. In the meantime, he said there’s “real concern” that storage in Canada will run out, meaning further price decreases.

Gas shipped from the Alberta AECO hub traded at $1.59 per million British thermal units below the U.S. benchmark Henry Hub price today compared with an average discount of 54 cents over the past year. On Sept. 6, the discount reached $1.72 per MMBtu, the widest since November 2009, according to data compiled by Bloomberg.

Simard said swings in Canadian crude oil prices have lessened since the price of Western Canadian Select heavy oil, a benchmark grade for the country’s oil-sands production, reached a record discount of $42 barrel below U.S. benchmark prices in December.

’Precarious Balance’

But he said that prices remain on a “precarious balance,” and any disruptions to pipeline or rail transportation could cause discounts to widen again. Any cuts in the available space on the Enbridge Inc. (ENB) Mainline would cause Western Canadian Select price discount to U.S. West Texas Intermediate oil widen to $35 a barrel, Simard said.

Calgary-based Enbridge’s Mainline is Canada’s largest oil export pipeline system that sends as much as 2.5 million barrels a day from Alberta to Chicago-area refineries and the U.S. supply hub in Cushing, Oklahoma.

Western Canadian Select prices weakened by $1.25 to a $27-a-barrel discount to WTI today, according to Calgary oil broker Net Energy Inc. It was the steepest discount for the grade since March 4, according to data compiled by Bloomberg. The grade weakened as refinery maintenance this fall at BP Plc (BP/)’s Whiting, Indiana, refinery and other plants is expected to decrease demand for Canadian crude.

To contact the reporter on this story: Edward Welsch in Calgary at ewelsch1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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