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Ice fog on the St. Lawrence River in -25 C weather in Montreal. Natural gas prices have surged this winter.Paul Chiasson/The Canadian Press

The frigid winter is warming up Canada's natural gas industry.

The bone-chilling cold from Calgary to Toronto to New York has led to surging demand and skyrocketing prices for the fuel as homeowners and businesses crank up their furnaces. It has provided a long-awaited boost for the industry, particularly smaller producers who were forced to rethink their plans through several years of rising drilling costs, a supply glut and slumping markets.

NuVista Energy Ltd. is a prime example of a company that had to tear itself apart in the lean years in order to find a stronger footing for these better days. NuVista chief executive Jonathan Wright sold off a third of his company amid weak gas markets in September 2012. The sale provided the company $236-million, giving it the flexibility to pay down debt and focus on its remaining asset: a piece of the prolific Montney play in British Columbia.

"It was a very important set of moves for us. It had to work. We had good confidence in the play, but we had to prove it," Mr. Wright said in an interview. "Then we had the money to prove it, we went and proved it, and since then it has only gotten better than our best predictions."

Dozens of companies such as NuVista went through similar restructurings or outright sales as natural gas prices languished. Even large producers such as Encana Corp. were forced into major makeovers.

Now, higher prices are bringing a payoff. Gas prices have strengthened this winter, with cold weather pushing up consumption and draining inventories. This has prompted investors to wager that demand for gas to refill depleted stocks will keep a floor under prices this spring and summer, bolstering cash flow of producers that have struggled with depressed markets for years.

"The hoped for, but unexpected, sudden increase in gas prices – it is just tremendous timing for us," Mr. Wright said. "As a company, it is sort of the fruits of a lot of labour for the last couple of years."

Prices at the AECO storage hub in Southeastern Alberta, Canada's main pricing benchmark, dipped early this week but have surged again to $7.65 a gigajoule as forecasters have called for another cold blast, according to the NGX electronic gas exchange. That is about 150 per cent higher than a year ago.

Still, few market-watchers expect sustained prices at recent lofty levels. Indeed, U.S. natural gas prices have dropped sharply this week as forecasts indicate milder temperatures ahead. Still, prices remain relatively firm and could settle in a higher range.

"This whole thing was driven by winter weather, which was longer and colder than expected. One thing that we know for sure is that spring is coming," said Gordon Currie, analyst at Salman Partners. "I don't think we should expect gas prices to be $6 going forward, but also don't think we're going back to $2 or $3, just because of the inventory situation."

In its weekly survey released Thursday, Canadian Enerdata reported that storage facilities in Eastern Canada sat at just 16.8 per cent of capacity in the week ended February 14. That is a record low for the period, with five weeks left in the industry's winter withdrawal season. At the same time last year facilities were nearly 50 per cent full.

The stronger market follows several years of oversupply due to the widespread adoption of horizontal drilling and hydraulic rock fracturing and weak demand as the North American economy limped to recovery.

It has meant major gains for gas companies, especially small and mid-cap names that have long been out of favor. In the past six months, NuVista shares are up about 25 per cent, Cequence Energy Ltd. is up 38 per cent, Perpetual Energy Ltd. is up 26 per cent and Birchcliff Energy Ltd. is up nearly 10 per cent.

Birchcliff also took steps to buffer its finances when prices languished. It issued $50-million of perpetual preferred shares in the summer of 2012, and $50-million of seven-year preferred shares a year later.

The proceeds partially funded Birchcliff's capital programs and also strengthened its balance sheet, Jim Surbey, Birchcliff's vice-president, corporate development, said in a statement. "This increased our bank syndicate's comfort with our outstanding credit facilities during those recent years of very low gas prices."

The impact is "huge" to those players that have resumed making money from resources that had at times failed to meet break-even hurdles, Salman Partners' Mr. Currie said. This does not mean that the full-cycle business of acquiring land, conducting seismic and drilling exploration and development wells targeting dry gas is suddenly highly profitable in Western Canada. According to Ziff Energy Group, the gas consultancy firm, that would require sustained prices of around $6 a gigajoule.

Even so, today's prices allow companies to produce gas from wells that had been shut off or drill wells targeting gas already known to be in the ground. Until this year, many had targeted more lucrative gas liquids or oil.

NuVista's Montney natural gas play comes with condensate. Mr. Wright says because of these bonus commodities, the project is "very profitable" even when natural gas trades at $3.50. The company is not banking on prices remaining at current levels.

"We're very happy with the gas prices," he said. "But this is a peak, to followed by, hopefully, somewhat better days we've had for the last couple of years."