Natural gas industry in 'precarious' position as prices dive

Natural gas prices have slumped for several years in Western Canada, but hit a new low this summer. On a few occasions, prices fellto zero and then turned negative. Essentially, companies would have had to pay money to get rid of the gas they produced.

Commodities analyst Martin King did a double-take when he first saw the minus sign in front of the natural gas price. He even picked up the phone and made calls to ensure it wasn't a mistake.

"It cost more to get it out of the ground then to buy it on the spot market," said King, with GMP FirstEnergy, following a presentation to oil and gas industry members in downtown Calgary on Wednesday morning. Hehas followed gas prices for nearly 25 years."It's a very, very unusual situation.I've never seen anything like it."

It cost more to get it out of the ground then to buy it on the spot market....I'venever seen anything like it.- Martin King, GMP FirstEnergy

The temporary price crashes were the result of maintenance on pipelines, which cut off some storage options and caused supply to back up.

For an industry already struggling, this summer was exceptionally tough, and the upcoming winter may be just as bad. Natural gas producers are hopingMother Natureserves up a cold winter across North America, after a few unusually balmy years. Frigid temperatures would lead to more natural gas being burned to heat homes and businesses.

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"You can't rely on weather, which is inherently unpredictable," said King. "At the end of the day, Canada just needs more optionsfor gas."

Those options have dried up recently after companieshaltedproposals to construct facilities on the West Coast to liquefy natural gas and export it overseas. While someLNGprojects are still in the planning phase and could one day be built, there are few other options to use up the natural gas produced in Alberta, besidestheoilsandsof northern Alberta requiringmore natural gas in future years and morepower plants running on the fuel.

"For companies more exposed to spot gas prices, what are you going to do? You can't run an industry off 25-cent gas prices, so a lot of guys are starting to ask questions," said King, "How sustainable is this? How long is this going to last?"

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The Canadian natural gas market is currently in a "very precarious" situation as supply keeps rising without as much growth in demand, said King.

Some companies are hedging their production, so they are guaranteed a certain price based on contracts. Other producers are trying to sell gas in different parts of North America so they can fetch a variety of prices.

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