Natural gas producers are scrambling to cut production as prices in Western Canada plunge below zero — a rare phenomenon brought on by a historic glut and a slow-than-expected ramp up of a new processing and shipping terminal on the British Columbia coast. The daily spot price for natural gas at Alberta’s benchmark AECO hub settled between minus 55 cents and minus 80 cents per gigajoule (GJ) this week, according to a Friday research note from National Bank of Canada Capital Markets. The note suggested that September is on track to post the lowest AECO prices in more than a decade. “It’s been a frustrating third quarter,” Phil Hodge, the chief executive of the Calgary-based producer Pine Cliff Energy Ltd., said Friday. “This will be the worst September that I can recall.” Canadian gas producers, including ARC Resources Ltd., Tourmaline Oil Corp., Canadian Natural Resources Ltd., Advantage Energy Ltd. and Vermilion Energy Inc., have been cutting back or shutting in production in response to weak spot prices, ATB Capital Markets noted in a report published Thursday. When prices dipped below Pine Cliff’s variable operating costs, Hodge said, the company began shutting-in wells. After prices went negative last week, he said, other producers paid Pine Cliff to accept their gas, which the company was able to feed into pipelines, satisfying its contractural obligations to supply the shipping lines. “I don’t want that to be our business model, but that’s what it was last week,” Hodge said, adding the company is also hedging more than half of its production, using contracts to lock-in better gas prices. “We’re definitely shutting in gas,” Hodge said. “It’s all about cash flow per share and cash flow per barrel. It’s not about just having production to say we have production.” Western Canada is awash in natural gas, according to market watchers, as rising production volumes have come up against seasonal pipeline maintenance and the slower-than-expected ramp-up of the new LNG Canada facility, which began shipping liquefied natural gas from a B.C. port in July. Technical issues that are expected to be resolved later this year at the facility have meant the demand from LNG Canada hasn’t kept pace with the basin’s ramp-up of supply. But when LNG Canada eventually reaches full capacity in the second half of the year, producers and market watchers say they expect the discount on Western Canadian natural gas to shrink and for the painful price swings to ease for producers. In the meantime, companies in Western Canada are left contending with a massive glut of natural gas and rock-bottom prices compared to other North American markets. Storage levels in Western Canada were around 520 billion cubic feet of gas earlier this month, more than 20 per cent above the five-year average, ATB Capital Markets said. mpotkins@postmedia.com x: @mpotkins What's the 'most Canadian' LNG project? Despite its name, it may not be LNG CanadaNatural gas prices have collapsed in Western Canada, but producers are ramping up spending