Canadian gas exports not expected to glut US market

Sept. 3, 2001
Canadian natural gas exports to the US are projected to rise by only about 1.1 bcfd in the second half of this year, compared with the same period in 2000.

Canadian natural gas exports to the US are projected to rise by only about 1.1 bcfd in the second half of this year, compared with the same period in 2000.

That figure represents a little more than half the expected available pipeline export capacity.

Analysts with Raymond James & Associates Inc. said that the latest figures should help dispel any notion that a big increase in Canadian gas is contributing to the rapid buildup in US gas storage volumes or that a rise in Canadian exports could significantly affect US supply-demand fundamentals (OGJ, Aug. 27, 2001, Newsletter, p. 5).

New Canadian production

RJA gas analyst Wayne Andrews said that record drilling in Canada has generated about 2 bcfd of new production this year. A significant amount of the increase is the result of Canadian Natural Resources Ltd.'s Ladyfern development in British Columbia.

Andrews estimated that Ladyfern will add 250-300 MMcfd of incremental ex- ports through the balance of this year, which is not enough to warrant concern about the US market becoming oversupplied. He called Canadian consumption the biggest wild card in the outlook.

During the second quarter, Canadian storage was filled at a rate of 2.3 bcfd, up from 1.3 bcfd in the comparable 2000 period. RJA analysts said it's likely that high prices helped contribute to a decline in Canadian consumption, mirroring price elasticity that has affected US consumption.

Pipeline export capacity isn't expected to be a problem, with an estimated 2 bcfd of unused capacity in the system. Com- pression and unutilized space on the TransCanada PipeLines Ltd. and Alliance Pipeline Ltd. systems could provide another 1.7 bcfd of export capability, Andrews estimated. Another 300 MMcfd could come with an expansion of the Pacific Gas Transmission Co. pipeline. "We think it is highly unlikely that Canadian production can continue to grow at a rapid enough pace to fill an additional 2 bcfd of export capacity," he said.

RJA previously estimated US gas production will rise about 3%, or 1.5 bcfd this year, compared with last year's levels. If the industry can't boost North American production by more than 2 bcfd, RJA said, it appears that some demand will have to be removed from the market. The outlook bolsters the brokerage firm's belief that gas prices will stabilize above $3.50/Mcf to balance the market.