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Natural gas markets are offering no refuge to an energy industry pummelled by low oil prices.

Canadian wholesale natural gas prices are a third lower than they were a year ago. That's when the polar vortex was setting in across much of the continent, producing bone-chilling temperatures and driving up demand for the heating fuel.

Now, bargain-basement prices for both commodities are combining to slash corporate returns and spending, which is bound to accelerate a long-term decline in overall Western Canadian gas production that unexpectedly took a breather in the past year.

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The situation is also forcing aspiring West Coast liquefied natural gas exporters to take hard looks at whether multibillion-dollar projects make economic sense.

On Tuesday, gas for next-day delivery at the AECO storage hub in Alberta fetched $2.80 a gigajoule – similar to a spring or fall price when temperatures in the province were in the minus-teens – compared with $4.13 a GJ a year earlier. (Canadian gas is priced by the metric unit gigajoule, which is slightly larger than a million British thermal units, the unit by which U.S. gas is priced.) During brief periods last winter, AECO gas surged above $8 a GJ.

Today's bargain price comes with storage volumes below those at the end of 2013. Inventories in Canada and the United States were drawn down to multiyear lows by the end of March, and many analysts predicted prices would be supported through the summer as the industry struggled to refill them. Such forecasts were wrong.

Instead, companies operating in the massive Marcellus shale play in the U.S. Northeast showed they could pump up output on a dime, and, with the help of mild summer weather, inventories were built back up to healthy levels by the time the heating season began at the start of November.

Temperatures this month were mild for the most part, aiding the storage situation. But the market is also now comfortable with the notion that rebuilding stockpiles quickly isn't the near-impossible task it once seemed, said Martin King, FirstEnergy Capital Corp.'s energy commodity forecaster.

Without a sustained cold snap for the next three months, it's tough to imagine a return to a run of high prices, Mr. King said.

"We've got even more supply growth going in 2015 than we did in 2014, so the market is throwing up its hands and saying, 'Why should we worry?'" he said.

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His stats numbers show Western Canadian supplies at 14.5 billion cubic feet a day, compared with 13.4 billion last December. The storage deficit, or the gap by which this year's volume lags last year's, has shrunk to 70 billion cubic feet from 127 billion at the end of November. It could disappear by February, given current trends.

U.S. markets, meanwhile, are anything but supportive. On Tuesday, New York Mercantile Exchange gas futures settled down 10.5 cents (U.S.) at $3.09 per million British thermal units, down 28 per cent from a year earlier. At 3.2 trillion cubic feet as of Dec. 19, inventories in the United States are 4.8 per cent above the year-earlier volume, according to the U.S. Energy Information Administration.

Besides more comfortable weather, a major change from last year is the faster rate of production gains in the United States, and especially the Marcellus shale, which increasingly supplies the big Northeast population centres and even Southern Ontario, where Western Canadian gas once had a near monopoly.

This creates some thorny problems for the oil patch. There have been times when Canadian energy companies could focus resources on the commodity that offered the best returns. When gas prices fell, they could concentrate on drilling for oil, and vice versa.

Now, with gas prices lagging last year and crude oil tumbling to 5 1/2-year lows, there are few ports in this storm.

In recent weeks, nearly all energy producers have announced across-the-board cuts in spending on operations to live within their means. Some have said they still expect to meet short-term production targets, but the reductions come at the expense of longer-term plans.

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If B.C. LNG projects keep getting deferred and low gas prices persist, there is little to stop the decline in Western Canadian gas moving from gradual to rapid over the next few years.

Editor's Note: An earlier online version of this column incorrectly said inventories in the U.S. were 4.8 per cent below year-earlier volume. This version has been corrected.

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