Pipeline Bottlenecks Force Canada’s Tourmaline, Kelt Exploration to Reduce Production

(Reuters) — Two Canadian natural gas producers on Monday said they had temporarily reduced production due to pipeline bottlenecks that led to a collapse in western Canadian gas prices in the second half of August.

Tourmaline Oil, Canada's largest gas producer, cut its third-quarter output by 1.5%, or 7,500 barrels of oil equivalent per day (boe/d), although its full-year production guidance remains unchanged at 507,000 boe/d.

Kelt Exploration Ltd. reduced its full-year 2022 production forecast by 1,500 boe/d to around 29,000 boe/d.

Spot natural gas prices at the AECO hub in western Canada tumbled last month and briefly turned negative as maintenance on TC Energy's NGTL pipeline system cut capacity, leaving gas stranded in Alberta and at the Station 2 hub in British Columbia.

"The company shut-in significant gas volumes on certain days in both Alberta and British Columbia," Kelt said in a statement.

The price collapse came amid a global surge in gas prices to record highs, as European countries scrambled to replace Russian supplies.

Spot Canadian gas traded at $2.248 per million British thermal units (MMBtu) at AECO on Friday, having recovered from the August lows.

However, Kelt warned there could be more AECO volatility through September and October as further maintenance on the NGTL system is completed.

Calgary-based Tourmaline shut in approximately 100 million cubic feet a day of existing production and delayed the startup of several new drilling pads from August to September or October. The company also scheduled facility turnarounds and hedged more gas volumes than usual during August.

RBC Capital Markets analyst Michael Harvey described Tourmaline's move as "reshuffling production” and said Kelt's shut-in was "a prudent move in the face of lower temporary gas prices."

Tourmaline shares were last up 2.8% on the Toronto Stock Exchange at C$79.99, while Kelt shares were down 0.8% at C$6.33.

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