A hot summer in eastern North America has air conditioners turned on high but it's not enough to revive still-moribund natural gas prices .
Three summers ago, hot weather - gas-fired electricity powers air conditioners - helped propel natural gas to a near-record of $14 (U.S.) per thousand cubic feet. Soon thereafter, the industry surprised itself with vast discoveries of shale gas, unlocked with new drilling technology, and a supply boom has swamped prices ever since.
The current price of about $4.50 - based on the United States benchmark hub - is up from a low earlier this month but still below small peaks reached in May and June. It is mired in the same narrow price band gas has traded in throughout the past year, a level arrived at after a steady two-year decline.
While a small number of market analysts have cited various factors that will soon underpin a stronger recovery in gas prices, even the most bullish only predict a price of about $6 - the average price figure that gas producers enjoyed through the 2000s.
For now, the many junior gas producers based in Calgary will continue to struggle.
The sector's biggest Canadian company, Encana Corp., will be an important sign post on Thursday when it reports second-quarter earnings, particularly for any market outlook issued by chief executive officer Randy Eresman.
The second quarter - April through June - will be weak, similar to the first quarter, according to RBC Dominion Securities Inc. Low gas prices likely "tempered" profits, analyst and co-head of global research Greg Pardy said.
Encana managed a small operating profit of $15-million, or two cents a share, in the first quarter, a figure Mr. Pardy estimates will tick up to about $130-million, or 17 cents, in the second.
The numbers are tiny fractions of Encana's billion-dollar-plus quarterly profits in 2007 and 2008.
One intriguing market factor in this extended period of low natural gas prices is the potential for acquisitions. Late last Thursday, global Australian miner BHP Billiton Ltd. offered $12-billion for Houston-based Petrohawk Energy Corp. - a 65-per-cent premium on the stock price of a company that has strong assets in three important new natural gas fields in the U.S. It will double BHP's oil and gas holding.
It is a similar move to Exxon Mobil Corp.'s $31-billion deal for XTO Energy in 2009, when gas prices were collapsing and the financial crisis squeezed everyone: A small independent, XTO, built positions in emerging areas and a global name - cash-rich Exxon - takes it out.
"BHP's acquisition demonstrates the demand for a resource position," analyst Bob Brackett of Sanford C. Bernstein & Co. in New York said on Friday.
"We believe further consolidation will be driven by desire to access quality resources."
Leading gas companies such as Canadian Natural Resources are skeptical of a price recovery. The firm has said it could take two years - and as many as seven. In the first quarter, Canadian Natural drilled 26 gas wells. Five years ago, in the first quarter of 2006, it drilled 593.
Since early 2006, U.S. domestic gas supply has climbed about 25 per cent, according to the Energy Information Agency. Growth paused only for several months during the financial crisis in 2009. Several more percentage points of growth are forecast by analysts.
One hopeful sign for gas producers is the number of rigs drilling for the commodity in the U.S. is down 12 per cent from a year ago. Rigs have turned their attention to much more valuable oil. Analysts also note that gas rigs are going after liquids-rich gas, which suggests the currently ample stream of dry gas will dissipate somewhat.
This and other factor leads Martin King, a commodities analyst at FirstEnergy Capital in Calgary, to forecast an average price of $5.25 next year, up from an earlier $4.75 forecast.
"For natural gas minded investors, it is a serious test of patience for a slow percolating turnaround in North American natural gas prices," Mr. King wrote in a recent report. "We realized that talking up a more bullish stance for North American natural gas prices might seem too early, or simply wrong. However, our sense it that just when prices are possibly getting ready to move convincingly turn higher, the growls from the price bears have become more defeating. This price bull is wearing ear plugs."