Alberta, the main energy-producing province, is under an “extreme cold” warning and wind chill temperatures could drop to below minus 40 degrees Celsius (minus 40°F) in places, said Environment Canada.
Spot natural gas prices at the AECO hub in Alberta jumped above C$5 a gigajoule, the highest since October, and also swung to a premium versus U.S. benchmark Henry Hub prices. AECO gas usually trades at a discount to U.S. gas.
Analysts said the cold spell had pushed up heating demand while also slowing oil and gas production due to malfunctioning equipment in the field.
“This is depleting storage much quicker than we have really seen before,” said Jeremy McCrea, an analyst with Raymond James. “That (premium) says we are trying to keep as much gas in western Canada as possible.”
McCrea said western Canadian storage inventories were approaching their lowest levels in five years.
Crude oil traders said the weather was also contributing to slowing production in northern Alberta’s oil sands, which account for the bulk of Canada’s crude output.
“Because of exposure you can’t send operators out in the field, vehicles don’t work well, everything is just a drag. You don’t get great production,” one industry source said.
The cold snap has persisted for more than two weeks but Environment Canada said the weather was expected to start improving over the weekend.
TC Energy temporarily shut down its 590,000 barrel per day Keystone oil pipeline for unplanned maintenance on Tuesday, and the cold hampered the restart, the company said.
Parts of neighbouring British Columbia are also under an extreme cold warning and the region around Vancouver – Canada’s biggest port – could get as much as 16 inches (40 cm) of snow by Friday as a storm tracks across the Pacific province.