Canada gas producers seek break on royalty payments for drillers

Bloomberg

Canadian natural gas producers are asking Alberta’s government to give drillers a break on their royalty payments in return for cutting back output during periods of heavy pipeline maintenance, a bid to smooth out the province’s volatile gas market.
That would give producers an incentive to dial back their output when capacity on TC Energy Corp.’s Nova Gas Transmission Ltd. pipeline system, which moves gas around and out of Alberta, is reduced due to regular maintenance or work on its expansion, according to executives involved in the talks. Without such an incentive, drillers often continue to push gas into the system despite the reduced capacity, resulting in volatile and low prices, they said.
TC could ask producers to cut a certain amount of output when it’s planning to do work on the system, and the government would manage the pool of credits that drillers accrue for voluntarily cutting back, Advantage Oil & Gas Ltd. Chief Executive Officer Andy Mah said in an interview. The program also would help the government collect more in royalties over the long term, he said. “You should see less of this big volatility,” Mah said of the potential program. “The royalty formulas are a function of price, and if the price is higher, everyone is able to realise gains.” The discount on gas at Alberta’s AECO hub relative to the Henry Hub in Louisiana has widened over the past two years and has also undergone some wild swings this year.