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Vol. 15, No. 48 Week of November 28, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Gas exports in trouble

Canadian natural gas to US projected to drop 2 bcf per day over next 5 years

Gary Park

For Petroleum News

New pipelines in the western United States and a flood of production in the east are expected to take a huge bite out of Canada’s natural gas exports, wiping out 2 billion cubic feet per day over the next five years, says a study by research group Bentek Energy.

Canada currently exports about 60 percent of its total gas production of 14.5 bcf per day, although Canada’s National Energy Board, in a mid-case forecast, has projected those volumes could fall by 2.2 bcf per day over the next two years.

Colorado-based Bentek warns that the displacement of Canadian gas will outstrip Canadian demand growth, acting as a drag on prices and resulting in a drilling downturn pending an increase in consumption by the Alberta oil sands sector, which needs gas to generate steam for thermal recovery projects and electricity for recovery and processing operations.

Bentek also expects the phasing out of coal-fired electricity generation in Ontario will also come to the rescue in the latter part of the forecast period.

Expansion out of Rockies

But the immediate concern stems from expansions of pipeline systems out of the U.S. Rockies region.

The opening next summer of El Paso’s Ruby pipeline to Malin, Ore., will see Rockies producers take a slice of the Canadian baseload market in California.

TransCanada’s Bison pipeline from the Powder River basin in Wyoming to the company’s existing Northern Border system in North Dakota will also claim about 400 million cubic feet per day of the Midwestern markets, taking a portion of the Venture, Iowa, market away from Canadian suppliers, Bentek says.

A looming flood of production from the Marcellus shale in the Appalachian basin has triggered a number of U.S. Northeast pipeline expansions, many designed to ship gas directly to Ontario, a mainstay of TransCanada’s 4 bcf per day mainline system.

Bentek says this “big squeeze” will have severe impacts on U.S. and Canadian flows, base relationships and ultimately on the Canadian supply and demand balance.

The firm predicts that Canadian production will drop by almost 1 bcf per day over the next five years as unconventional production growth from the Montney and Horn River shale plays in British Columbia fail to counter significant declines in conventional volumes from Alberta.

Changes in prices, flow patterns

By increasing takeaway from the Rockies directly to California and the Midwest markets, the Ruby and Bison pipelines will change prices and flow patterns across the West and deep into Canada, it says.

By next summer, Rockies producers will have an incremental 1.5 bcf per day of westbound capacity on Ruby, which will compete directly against Pacific Gas and Electric’s premium market in the West.

NEB statistics for the first eight months of 2010 estimated Canadian exports to the California market of 342 bcf, up 89 bcf from the same period of 2009.

Overall exports from Canada have been flat compared with 2009 at about 7 bcf per day.

Bentek says Marcellus production has already started redirecting Canadian imports out of the region and planned pipeline expansions will have capacity for 14 bcf per day to support further growth of the Marcellus play and other unconventional plays in the Southeast-Gulf of Mexico and Rockies.

Greg Lohnes, president of natural gas pipelines at TransCanada, told investors it is “very difficult to build new infrastructure,” but his firm has existing depreciated infrastructure which allows it to “move gas an awfully long way for what it costs to build a very short pipeline through a very congested area.”



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