Unlock real-time, actionable energy insights. This blog offers just a glimpse of the powerful analysis Oil & Gas Research delivers on today’s energy markets. Don’t miss the full picture. Click here to learn more.
A major winter storm recently swept across Eastern Canada and the Eastern U.S., triggering significant turbulence in natural gas markets. Traders across North America found themselves grappling with soaring prices and, in some instances, record-setting volatility. Amidst this frenzy, Alberta’s AECO hub, Western Canada’s primary gas trading point, maintained a remarkable degree of stability. This blog aims to unpack the recent price swings, the influence of weather and the unique factors that have largely insulated Alberta from this market upheaval.
The US Natural Gas Market: A Forecaster’s Nightmare
Recent market events presented a challenging scenario for price forecasters. A sudden polar vortex, largely unanticipated, sent natural gas prices at Henry Hub, the most traded U.S. hub, soaring from about $2.80/MMBtu to $7/MMBtu in just two trading sessions (correction: it took a week). Regionally, the spikes were even more dramatic: New York gas prices surged to $61/MMBtu, while Texas saw prices hit $17/MMBtu. This volatility highlights the critical role of weather, which can skyrocket prices to levels that destroy demand or necessitate fuel switching.
The roller-coaster ride began in the fall, with traders initially anticipating a cold blast that pushed prices to $5 before weather forecasts turned bearish with projections of warmer-than-normal temperatures. The polar vortex’s unexpected arrival caught many off guard, leading to a fascinating phenomenon known as a “short squeeze.” Our team observes that most traders had positioned themselves for falling prices based on earlier weather forecasts. When the cold hit, these traders were compelled to buy back their short positions to limit losses and then take bullish positions, significantly compounding market volatility. Interestingly, this period was warmer than the previous year, yet the trading momentum still drove an unprecedented price spike.
This sequence of whiplash events shows just how unforgiving the U.S. natural gas market can be for anyone trying to anticipate price direction. Rapid swings in expectations drove equally rapid price moves, and the delayed onset of the polar vortex highlighted how even modest shifts in weather projections can skew trader positioning and set off disproportionate market reactions. Many participants had leaned bearish on the back of earlier warm forecasts, only to scramble to cover shorts as temperatures plunged, intensifying the spike.
In markets this sensitive to weather, the meaningful advantage often comes from earlier or more localized signals rather than broad consensus forecasts. In this case, Climavision’s high‑resolution point‑forecasting approach was able to highlight the potential for unusually cold conditions in key production regions several days before the cold snap developed. That kind of early indication can give market participants valuable time to reassess exposure, whether by adjusting positions, securing storage, or hedging ahead of a possible demand surge and risk of supply disruptions.
Alberta’s Unaffected Stability: A Supply Story
In contrast, Alberta’s natural gas hub remained relatively stable. We attribute this stability to the province’s robust inventory supply and surplus of gas in storage. Furthermore, Alberta has experienced largely normal winter to date, maintaining healthy storage levels since November.
The key factor insulating Alberta from the extreme price spikes seen elsewhere is the inability to efficiently transport the province’s gas to the specific markets experiencing weather-driven demand spikes. This geographical and infrastructural disconnect means that while New York faced $61 gas prices, Alberta’s abundant supply will not reach those consumers. This situation, while frustrating for some producers seeking to capitalize on high prices, results in a domestic market that is relatively less volatile compared to some of its supply-starved customers, often to the envy of Canadian producers.
Trade the facts, not the noise
Get energy fundamentals, price drivers and risk signals in your inbox bi-monthly.
The Future of Volatility: The LNG Revolution
Looking ahead, we anticipate that natural gas market volatility is likely to increase, driven significantly by the ongoing revolution in North American LNG exports. The continent is effectively doubling its capacity to export gas, with projects like LNG Canada in B.C. further integrating Canadian and North American supply with global markets, particularly Asia.
This introduces a new layer of complexity. Asian gas storage capacity is roughly half that of North America, making these markets more susceptible to price shocks from weather disruptions. Consequently, any uncommitted volumes of gas that cannot land in Asia because of disruptions could ripple back and impact prices in Canada and the U.S., further exacerbating volatility.
The Canadian Producer’s Dilemma
For Alberta producers, marketers and traders, the current market dynamics present a challenge. While observing the high prices in other regions, there’s a prevailing sentiment of envy. A common narrative in downtown Calgary is the frustration over why AECO prices struggle to reach $4 or $5, even with the advent of LNG.
This blog post is based on an episode from the Calgary Eyeopener radio series, hosted by Loren McGinnis, featuring an interview with Al. You can check out the full episode here.
Key Takeaways
What caused the recent natural gas price spike in the U.S.?
A sudden and unexpected polar vortex led to a short squeeze, causing Henry Hub prices to nearly triple and regional prices in New York and Texas to surge significantly.
Why did Alberta’s natural gas market remain stable during this period?
Alberta’s market stability was due to abundant supply, ample storage and the inability to transport gas efficiently to the highly affected American markets.
How might future LNG exports impact natural gas market volatility?
Increased LNG export capacity will link North American markets more closely with Asia, whose lower storage capacity could lead to greater price volatility rippling back to North America.
About Enverus Intelligence®| Research
Enverus Intelligence® | Research, Inc. (EIR) is a subsidiary of Enverus that publishes energy-sector research focused on the oil, natural gas, power and renewable industries. EIR publishes reports including asset and company valuations, resource assessments, technical evaluations, and macro-economic forecasts and helps make intelligent connections for energy industry participants, service companies, and capital providers worldwide. See additional disclosures here.
