Rockies shouldering Canadian gas aside

A new pipeline carrying cheap natural gas from the U.S. Rockies threatens to displace about 10 percent of Canadian exports to the Midwest, swelling gas in storage and eating into returns for Canadian producers.

The Rockies Express line, covering 1,680 miles, ships 1.5 billion cubic feet per day through the Midwest to Ohio.

Although the latest section of the so-called REX system only came into service in late June, it has already shut out about 600 million cubic feet per day of Canadian exports.

REX, a partnership of Kinder Morgan, Sempra Energy and ConocoPhillips, is designed to eventually handle 1.8 billion cubic feet per day.

Cheaper than Canadian gas

Rockies gas is cheaper than supplies from Canada and REX is a more efficient carrier than the long-established Northern Border pipeline, which originates in Alberta.

A further threat to Canada’s traditional role as the supplier of about 15 percent of U.S. gas consumption is the rapidly accelerating use of new technology to drill for unconventional gas in Montana, Wyoming and Colorado.

Despite the vast deposits in British Columbia’s Horn River and Montney plays, the challenge for Canadian producers is to get gas out of the ground for less than US$4 per thousand cubic feet if they hope to retain even their current shrinking share of the U.S. market.

—Gary Park