Persistently weak North American natural gas prices in recent months has led to increased use of the commodity in U.S. power generation, a situation that should lead to improved pricing as 2023 continues to unfold, says a leading oil and gas sector analyst.

Martin King, senior analyst RBN Energy, LLC, believes current weak benchmark prices — NYMEX settled Friday at US$2.18/mmBtu and AECO closed the day at C$2.27/GJ — will rebound, but not to the levels witnessed late last year.

“I think that with the lower prices in the U.S. markets, obviously we came out of a warm winter so that didn’t help the situation coming into the spring. So everyone exited with above average gas in storage. And that clearly lightened up worries about having enough gas over the summer and going into next winter,” he said.

“So that was one of the reasons why prices have been low.”

But King said the situation for natural gas producers should improve over the summer and into the colder months.

“I think what we’re seeing is the early signs here that with gas being in some ways very, very cheap, in the last six to eight weeks you have seen a lot of uptick in power generation burn. So the U.S. power generation side has really stepped up to the plate here,” he said.

“So once the weather does start to warm up into June, July and August, I would not be surprised to see near record or record gas consumption from power generation through the summer. And that has, on more than several occasions, reset what appeared to be an oversupplied U.S. gas market. It’s reset it to a much more reasonable level for gas storage by the end of October,” King added.

“So, if we still get gas storage of 3,700 to 3,800 bcf, I think that’s pretty reasonable given what I think is going to be happening for gas power burn consumption over the summer. And that will not be at the critically high levels of 4,100 or 4,200 bcf in storage.”

Given the aforementioned, King can see U.S. natural gas prices breaching the US$3/mmBtu mark, perhaps a little higher.

“I have a tough time seeing $4 right now, but I can certainly see us north of $3 and as much as $3.50. And of course, after that it’s waiting to see how winter shakes out. But certainly north of $3 I could see happening this summer,” he said.

“And if we get several weeks of extended hot weather combined with a lot of gas power burn, I could see it pushing $3.50.”

And that, King noted, should be positive for producers north of the border as well.

“Ultimately for Canadian pricing it’s going to come down to what happens to U.S. pricing at the end of the day. And if we think prices are going to be strong in the U.S., that is going to help pull up AECO pricing to a degree,” he said.

“Now I think that the pricing differential of AECO to, say, Henry hub might end up being a little wider than average. Part of that is pipeline maintenance. But overall, I could see AECO improving from where it is to $2.50 Canadian or so,” King added.

“If we moved up into the upper twos or maybe even $3 or $3.25 late in the summer, I think it’s very possible that we can pull that off.”

The Alberta wildfires hampered western Canadian natural gas output recently, another factor that could help improve prices.

“Certainly with the fire situation having slowed down production growth — a sort of unexpected rescue for prices, if you want to call it that — we’ll see storage build a little bit more slowly over the summer,” King said.

“Certainly at the end of May and going into June storage is going to end up being a little bit lower than what a lot of people thought because of a very unexpected reason because of the fires.”