Canada's natural gas industry is hitting the brakes, with producers curbing drilling and shutting in uneconomic production amid the lowest gas prices in 40 years — all the while betting on a rebound as LNG exports ramp up later this year.
Just over 160 drilling rigs were active across the country in June, the lowest level in at least two years and down 17pc from the same time in 2024, according to the Canadian Association of Energy Contractors (CAOEC), an energy group that represents the country's drillers.
The pullback reflects deepening price pressures on so-called ‘dry gas,' which lacks valuable liquid byproducts like condensate that can offset poor gas realizations.
Arc Resources, Canada's third-largest natural gas producer, said this week it shut in 360 mmcf/d of dry gas during the second quarter due to weak market conditions. "We're managing through near-term pricing headwinds," chief executive Terry Anderson told analysts. "But we're optimistic as new LNG infrastructure comes on line."
Like others in Canada's prolific Montney Shale, Arc is increasingly looking beyond depressed North American benchmarks such as AECO and Henry Hub.
The company has signed two long-term agreements with US LNG giant Cheniere Energy to tie gas supply to premium international markets in Asia (JKM) and Europe (TTF). The deals are aimed at improving margins and reducing reliance on volatile domestic pricing.
Arc's gas realized price fell to C$2.80 ($2.04)/1,000cf in the second quarter, down from C$3.10/1,000cf a year earlier. In contrast, its condensate — used to dilute bitumen for pipeline transport — fetched over C$90/bl, helping offset the impact on revenues.
"We remain Canada's largest condensate producer, and that continues to support our financial performance," Anderson said.
The broader industry is similarly cautious. Canadian Natural Resources, Canada's second-largest gas producer, has also reduced gas-weighted drilling in anticipation of higher prices once the Shell-led LNG Canada terminal at Kitimat, British Columbia (BC), begins shipments in earnest. The first cargoes to Japan and South Korea departed Canadian shores in July but observers expect it will take time for meaningful price recovery to materialize.
Analysts expect a gradual recovery into 2026 as LNG Canada ramps up, finally offering Canadian producers meaningful access to global markets and a path out of chronic domestic oversupply.
A recent analysis by Deloitte Canada estimates domestic producers will not fill the demand created by current LNG export projects for at least the next four to seven years.
"This likely will mean the strengthening of the AECO benchmark, enabling Canadian producers to achieve more favourable value for their gas," wrote partner Andrew Botterill. "Natural gas prices should see a narrowing of the differential relative to Henry Hub that lasts for multiple years once exports ramp up."
