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Based on expectations of higher demand, U.S. natural gas prices have been on an upward trend since March when they bottomed out at US$1.99 per million British thermal units, or MMBtus, an industry standard.

Natural gas futures prices (December contract) are in the US$3.32 range. In Canada, prices on the Natural Gas Exchange in Alberta are at $2.55, also up from the summer months. (Alberta’s gas prices are based on NYMEX contract prices and have been discounted to reflect transportation costs, the province’s supply basin, foreign-exchange rates, and the conversion from MMBtu to gigajoules.)

Natural gas production – a quick background

The United States is the largest producer of natural gas globally, followed by Russia. Canada ranks fifth behind Iran and China, based on 2022 data. More than 95 per cent of the natural gas produced in Canada comes from Alberta and British Columbia. The combined production from the U.S. and Russia is more than the next 12 countries combined, and the U.S. produces almost twice as much natural gas as Russia. Russian gas production was down by 12 per cent in 2022. Current monthly production levels in both Canada and the U.S. are near historic highs.

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Natural gas consumption – a quick background

Data from the International Energy Agency, or IEA, show natural gas consumption in the U.S. is broken down as follows: electric utilities 38 per cent, industrial 32 per cent, residential 15 per cent, commercial 11 per cent, transport 4 per cent. In Canada, breaks consumption down into 72 per cent industrial and power generation, 14 per cent residential, and 14 per cent commercial.

Recent natural gas price moves

Natural gas prices are very much driven by supply and demand. Supply discipline, industry consolidation and resistance to growing production to maximize free cash flow, coupled with the hot summer, have been reasons for the steady rise in natural gas prices this year, according to Eric Nuttall from Ninepoint Partners, in a recent BNN Bloomberg interview.

The accompanying chart shows how U.S. natural gas inventories build during the summer months (referred to as the refill season) and are drawn down through winter into spring. Canadian inventory levels follow the same pattern.

According to IEA estimates, working gas in storage was 3,700 billion cubic feet as of Oct. 20. Over the previous week, year and against the five-year average, stocks are up 74 Bcf, 313 Bcf and 183 Bcf, respectively. At 3,700 Bcf, the IEA states total working gas is within the five-year historical range.

The coming winter will have an impact on how quickly we draw down natural gas inventory and ultimately its impact on price.

The National Oceanic and Atmospheric Administration has a winter forecast of wetter in the south and warmer in the north, driven by a strengthening El Nino. In Canada, temperatures are expected to be at or above normal throughout most of the country this winter, according to Environment Canada and supported by the NOAA data. In the shorter term – one to two weeks – we can expect normal to above average temperatures in the western half of the continent and normal to below average temperatures for the eastern half.

Liquefied natural gas

Historically, natural gas was sold locally or distributed by pipeline to neighbouring markets. Liquefaction of natural gas into LNG allows the gas to be transported from producing regions to distant countries. (By cooling natural gas to minus 161 C, all hydrocarbons in it liquefy.) Over the next five years, the IEA sees North American LNG export capacity doubling to roughly 24 Bcf a day from the current 12 Bcf level.

New capacity is projected to come online in Mexico, Canada and the United States. As of the first half of 2023, the U.S. has exported 7.7 Bcf a day to Britain and the rest of Europe, representing 67 per cent of their exports. Canada does not currently have an LNG export facility, with the LNG Canada project being constructed in Kitimat, B.C., expected to deliver its first cargo to Asian markets in 2025.


Based on forecasts of higher demand, U.S. natural gas prices have increased 67 per cent this year off their lows in March, and Canadian prices are up 40 per cent from summer lows. Current inventory levels are at or above historic averages, production levels remain near historic highs, and the coming winter looks like it will have normal to above average temperatures, so we should expect natural gas prices to be near mid-term highs barring any extreme winter conditions.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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