Canadian oil and gas producers are banking higher profits as unusually severe winter weather sidelines U.S. rivals this week and drives up demand and prices for their products.
But analysts say that while the higher prices are providing a needed short-term boost for the struggling Canadian oilpatch, the gains will likely gradually fall away when warmer weather allows American producers to get back in the field to repair and restart their facilities.
IHS Markit natural gas analyst Ian Archer says gas exports from Canada to the U.S. were running at a near-11-year high of about eight billion cubic feet per day on Wednesday, up from an average of about six billion in January.
He says gas wells and facilities south of the border aren’t as well protected against severe cold and snow as they are in Canada, leading to as much as half of the gas production in Texas, for example, going off-line just as demand peaks for fuel for home heating and electricity.
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Robert Fitzmartyn, head of energy institutional research at Stifel FirstEnergy in Calgary, says demand for Canadian crude oil is also up thanks to oil well and facility shutdowns in the U.S., but that’s being offset in part by lower demand due to temporary refinery closures there.
On Wednesday, benchmark U.S. West Texas Intermediate crude oil prices settled up US$1.08 at US$61.16 per barrel, the highest in more than a year, while the March natural gas contract was up nine cents at US$3.22 per million British thermal units.
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“When it gets cold down there, unlike up here, nothing is insulated, so pipes freeze, distribution facilities freeze, natural gas processing centres lose power,” Archer said.
“So it basically has led to a massive reduction in U.S. gas supply right now.”