The state of Canada’s natural gas market largely reflects that of the United States: robust production, elevated storage levels and suppressed prices.

To be sure, the Arctic blast in mid-January that briefly bolstered heating demand and caused wellhead freeze-offs that slowed production in the Lower 48 also gave the Canadian market a boost. Cash prices, especially, rallied on both sides of the border.

NGI’s Spot Gas National Avg. reached an early 2024 high of $16.77/MMBtu in the second week of January, more than five-fold higher than the lows of this winter. Western Canadian cash prices topped the $16 level that week as well. And, of course, the winter season is far from over.

[Want to visualize Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

But the weather warmed across North America in late January and, with forecasts for more of the same in northern markets during the first half of this month, prices swiftly retreated as traders focused anew on supply/demand imbalance and strong levels of gas in storage.

NGI’s National Avg. for the Lower 48 stood at $2.290 on Monday. In Canada, NOVA/AECO C averaged C$1.965, while Westcoast Station 2 averaged C$1.650. The Canadian dollar is worth about 74 cents in the United States.

“After exiting 2023 with more than 700 Bcf of gas in storage (the highest year-end level since at least 2017), Winter Storm Gerri brought higher demand in Canada, supply freeze-offs and growing exports to the U.S. to reduce Canadian storage off historic highs,” EBW Analytics Group analyst Eli Rubin said of late January conditions. “Still, Canadian storage remains 158 Bcf above year-ago levels and 93 Bcf above the five-year average and is poised to recover surpluses amid extremely mild near-term weather.”

Lofty Canadian inventories remain “a bearish influence for Nymex gas prices,” Rubin said. If U.S. prices were to rally in late winter, “a flood of Canadian imports” in the Northwest “could quickly quell upside” for futures and cash prices at Malin and other western American hubs.

Henry Hub futures already are under pressure. The prompt month contract on Monday closed up three-tenths of a cent at $2.082. But it was down about 20% from year-earlier levels.

Following the January surge of frigid air, a government report also showed a huge storage withdrawal in the Lower 48. The U.S. Energy Information Administration (EIA) printed a draw of 326 Bcf for the week ended Jan. 19. The storage pull easily eclipsed the five-year average decrease of 148 Bcf and marked the third-largest on record. EIA printed four consecutive triple-digit storage increases.

After all that, however, Lower 48 storage was still 5% above the five-year average at the end of January. In the Mountain West, stocks were 35% ahead of historical norms, and in the Pacific region, inventories were ahead 12%. Based on that and near-record U.S. production, markets in the West have no need for increased imports from Canada, as Rubin noted.

Stubborn Imbalance

At its January low, total U.S. production dropped close to 90 Bcf/d, down from the near-record highs around 106 Bcf/d at which output started 2024, according to Wood Mackenzie data. Production has since rapidly recovered and hovered just shy of 106 Bcf/d on Tuesday.

Canadian production also hit a record near 19 Bcf/d late in 2023, according to RBN Energy LLC, and it has held strong early this year, aside from the January freeze.

“Any way you cut it, we have plenty of supply right now,” Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI.

Against that backdrop, bulls in the Canadian market – like the United States – may have to wait for coming LNG expansions to come to fruition later this year, including LNG Canada, and in following years.

“Given that the Canadian natural gas market was already oversupplied and struggling with record-high gas storage levels as winter approached, even the most intense cold blast in mid-January wasn’t enough to return the supply/demand balance north of the 49th parallel to anything near normal,” RBN analyst Martin King said.

“Being dependent on both a cold winter and strong gas exports to the U.S. to help balance out its natural gas market, the Canadian gas market has been put through the wringer,” King added. Even after the January chill delivered some relief, it remains “mired in a modest oversupply while still dealing with very high storage levels for this time of year.”

Canadian forward prices reflect the dire near-term outlook. NOVA/AECO C forward prices are seen averaging near $1.50 for the March-December period, according to NGI’s Forward Look. Higher prices may be on the way, however, with the calendar year (CY) 2025 strip averaging around $2.40 and CY 2026 averaging close to $2.75.