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Some corporations evaluate spending plans, whereas lowered heating demand is predicted with the anticipation of a return to warmer-than-normal temperatures this winter, report says.
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The fickle fortunes of pure gasoline markets have Canadian petroleum producers bracing for weak costs throughout the first half of 2024 and a few revising their spending plans.
Benchmark AECO pure gasoline costs within the province jumped sharply throughout the nasty chilly snap and topped US$10 per thousand cubic toes (mcf) earlier this week, earlier than shortly melting again into the $2 vary, in response to knowledge from ATB Monetary.
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On Friday, the U.S. benchmark gasoline worth dipped to US$2.25 per million British thermal items.
It’s a rocky begin to the yr, with executives and business analysts anticipating producers to reply to costs caught within the doldrums.
Earlier this week, pure gasoline producer Birchcliff Vitality reduce its annual base dividend in half to 40 cents per frequent share.
The Calgary-based agency additionally introduced it might delay drilling 13 wells deliberate for the primary half of the yr till later in 2024, representing about $80 million to $90 million of deliberate spending, stated Birchcliff CEO Chris Carlsen.
(The corporate had set its capital funds between $240 million and $260 million.)
Carlsen, who took over the corporate’s helm at the beginning of the yr from retiring CEO Jeff Tonken, stated the modifications introduced Wednesday will give the corporate the choice of bringing manufacturing on-line later within the yr, when commodity costs needs to be larger.
“That is all within the spirit of defending the stability sheet, based mostly on what we see for the ahead commodity costs,” Carlsen stated in an interview Friday.
“I can inform you, the business is their capital applications. It’s not Birchcliff unique. We’re most likely one of many first ones to regulate.”
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Because the announcement, Birchcliff’s inventory dropped 14 per cent on the Toronto Inventory Trade.
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Trade analysts count on weak costs for gasoline by way of the spring and summer season, however an enchancment later within the yr.
ATB is forecasting AECO spot costs will common C$2.75 per mcf this yr, whereas benchmark U.S. costs common US$3 per million British thermal items.
The U.S. Vitality Data Administration just lately projected spot costs for gasoline will common $2.70 per mmBTU, whereas anticipating American gasoline manufacturing to develop by about 1.5 billion cubic toes per day.
In the meantime, a brand new report by Morningstar DBRS stated the North American gasoline market will possible stay weak by way of early 2024 due to higher-than-average gasoline in storage in america, presently hovering round 11 per cent above five-year ranges.
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Lowered heating demand is predicted with the anticipation of a return to warmer-than-normal temperatures this winter.
Stock ranges going into the winter have been elevated and costs have been “sluggish,” Victor Vallance, managing director with Morningstar DBRS, stated Friday.
“We do see that provide is kind of sufficient in Western Canada, and positively as properly within the U.S.,” Vallance stated.
“I feel we are going to see extra corporations curtail spending, fewer corporations direct spending cash towards pure gasoline growth.”
Regardless of the current chilly snap in Canada and the U.S. over the previous two weeks, this winter has largely seen temperatures above regular with the affect of El Nino.
Whereas Birchcliff led the best way with its plan to shift spending and reduce its dividend, different corporations may even be deferring capital or shifting it to grease developments.
“What they’re doing may be very prudent. In our view, the Canadian gasoline market is prone to be very oversupplied for 2024,” stated Dulles Wang of power consultancy Wooden Mackenzie.
“It means we could possibly be seeing extra producers doing cuts.”
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A current report by Wooden Mackenzie stated that with a surge in Canadian and U.S. gasoline manufacturing and storage inventories final yr, the North America gasoline market is awaiting the arrival of one other wave of LNG export initiatives.
Doug Dafoe, CEO of personal gasoline producer Ember Assets, famous western Canadian gasoline storage ranges are above common for this time of yr, which has created pessimism towards what the costs will appear like in the summertime months.
Nonetheless, the startup of the LNG Canada challenge — anticipated in 2025 — will enhance demand and supply a brand new export outlet for western Canadian gasoline. Different LNG developments in Canada are within the works, together with the proposed Ksi Lisims, Cedar LNG and Woodfibre initiatives.
As an alternative of progressing its capital program in January and February, Ember has determined to largely transfer its spending from early this yr into the fourth quarter.
“We have been all fairly optimistic going into the autumn final yr . . . however Mom Nature caught us once more,” Dafoe stated.
“Why would you produce your gasoline right into a worth surroundings like this?”
That’s why Birchcliff determined to shift spending and drilling into the again half of the yr, ready to look at for what occurs with gasoline demand — and costs — within the coming months, Carlsen stated.
“We’re attempting to be sure that we shield ourselves for the draw back . . . We see higher pricing into (the fourth quarter) and into 2025, so it is smart to deliver these wells on later within the yr,” he stated.
“We aren’t giving up on winter, however definitely while you begin it that heat, individuals get fairly pessimistic, fairly shortly.”
Chris Varcoe is a Calgary Herald columnist.
cvarcoe@postmedia.com
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