Short-term Canadian Natural Gas Deliverability - Fact Sheet

Overview and Summary:

Natural gas pipeline The report, Short-term Canadian Natural Gas Deliverability 2013-2015, looks at the factors that affect natural gas supply and pricing in Canada through 2015. Canadian natural gas investment and drilling levels are projected to remain close to current levels in 2013. Natural gas appears to be in a holding pattern due to the following three key drivers influencing future Canadian natural gas deliverability:

  • Minimal drilling activity because current and projected prices do not cover the costs of developing most natural gas prospects.
  • New natural gas supply is largely a by-product from developing oil and natural gas liquids (NGLs)-rich prospects.
  • Producers are not earning sufficient returns to attract additional equity investment with current prices of around $3.00/GJ in Western Canada.

Current Trends:

  • The decline in North American natural gas prices in recent years is the result of the dramatic growth in U.S. shale gas deliverability having outpaced the growth in North American natural gas demand.
  • Record hot summers may not continue and this would lessen the draw on gas-fired power generation and would tend to reduce natural gas demand.
  • Companies continue to drill some new natural gas wells to add reserves that will replace some portion of the production from existing wells.
  • Some natural gas development in Western Canada is likely being postponed since Canadian LNG projects are taking longer than anticipated to obtain sales commitments from gas purchasers.
  • Preliminary industry testing of the extensive Duvernay shale prospect in Alberta is underway and the deliverability forecast includes a range of estimates for Duvernay development. However, more widespread testing and the creation of development strategies will need to occur before the resource is developed extensively.
  • The large potential resource base in the Liard Basin, Horn River Basin, Cordova Embayment, and deeper portions of the Montney Formation is almost all dry gas. Without the benefit of NGL revenues these resources will be dependent on higher natural gas prices to accelerate development.

Cost of Production:

The shift in Canadian drilling activity towards targeting crude oil and bitumen increases the use 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 14 106m³/d (0.5 Bcf/d) between 2013 and 2015. Most of this increase in natural gas demand would be from increased usage for oil sands development in Alberta. Natural gas deliverability exceeds expected Canadian demand.

Natural Gas Deliverability Outlook:

This report includes lower, mid-range and higher price cases for natural gas based on varying market factors.

Lower price case:

  • Growth in markets for Canadian natural gas is assumed to be slowed by mild weather conditions, modest economic growth and ongoing displacement by supplies of U.S. natural gas.
  • In 2015 the average Henry Hub price is $3.65/MMBtu, and total Canadian deliverability decreases to 323 106m³/d (11.4 Bcf/d) from 396 106m³/d (14.0 Bcf/d) in 2012.

Mid-range price case:

  • Moderate growth in North American natural gas demand, coupled with declining Canadian natural gas deliverability and slowing U.S. supply growth, gradually reducing excess deliverability in North American natural gas markets. 
  • The Henry Hub natural gas price averages $4.35/MMBtu and Canadian deliverability averages 353 106m³/d  (12.5 bcf/d).

Higher price case:

  • An expectation of some recovery in markets for Canadian natural gas due to a return to more normal winter weather, continued hot summer weather, stronger economic growth and less displacement by U.S. gas supplies.
  • Power generators continue to prefer natural gas over coal in specific markets despite rising natural gas prices, potentially for environmental benefits or to better match variations in the electricity demand profile.
  • In 2015 the Henry Hub price averages $5.95/MMBtu and Canadian deliverability levels out at 371 106m³/d (13.1 Bcf/d) in 2014 and 2015.
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