ARCHIVED - Fact Sheet - Short-term Canadian Natural Gas Deliverability
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Fact Sheet - Short-term Canadian Natural Gas Deliverability
Overview and Summary:
The report, Short-term Canadian Natural Gas Deliverability 2012-2014, looks at the factors that affect natural gas supply and pricing in Canada through 2014.
Canadian and U.S. natural gas prices have declined and are near their lowest levels in almost a decade due to:
- An oversupply of gas, caused mostly by an increase in shale gas production in the U.S.
- Demand growth not keeping pace with the increased production.
In contrast, oil prices have increased and are nearing their highest average annual level in over a decade, making it a more lucrative target for producers.
Without the presence of valuable natural gas liquids (NGLs) such as propane, butane and pentanes plus, drilling for dry natural gas is often not economical at current prices. Depending on the amount of NGLs in the natural gas, the additional revenue earned from the sale of NGLs can be more than the revenue earned from the natural gas itself, since NGL prices tend to more closely follow the price of oil.
Cost of Production:
The shift in Canadian drilling activity towards targeting crude and bitumen will increase the utilization of labour, materials and equipment and could contribute to cost inflation in the drilling and service industries. Cost inflation will be felt in service industry activity and add to the competitive environment for producers targeting natural gas or oil.
Natural Gas Demand:
The National Energy Board projects annual Canadian natural gas demand to grow by 17 106m³/day (0.6 Bcf/d) between 2012 and 2014. Most of this increase in natural gas demand would be from increased usage for oil sands development in Alberta.
Also, if natural gas prices are at levels where gas is cost-competitive with coal, natural gas-fired electricity generation could replace some of the older and less-efficient coal-fired units in certain markets. This increased gas demand could gradually help to reduce the oversupply situation.
Natural Gas Deliverability Outlook:
This report includes lower, mid and high range price cases for natural gas based on varying market factors.
Lower price case:
- Persistent oversupply conditions will cause natural gas prices to remain below 2011 levels through to 2014.
- Canadian consumers will benefit from lower prices but this case reflects the greatest decline in natural gas production.
Mid-range price case:
- Canadian deliverability will continue to be well above demand
- Slowing gas drilling activity and rising natural gas demand would begin to reduce the oversupply conditions and prices would rise gradually.
Higher price case:
- A closer balance between supply and demand
- Even with resulting increase in price, liquids-rich gas continue to be the main source of new production, with a return to substantial dry natural gas drilling not expected until 2014.
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