Rising demand and prices are adding luster to the short and medium term outlook for Canada's natural gas industry.
Most industry forecasters expect a steady increase in domestic and export demand into the mid-1990s and beyond.
On the downside, Alberta producers experienced deliverability problems during a cold snap in the 1992-93 winter. Depressed prices until mid-1992 reduced producer efforts to connect their shut-in gas. And drilling activity has spawned a shortage of experienced rig crews in western Canada.
There has been rapid growth in gas pipeline capacity from western Canada to the U.S. Northeast with more capacity planned as that market continues to grow.
Added pipeline capacity to California from Canadian and U.S. producing areas now coming on line may be greater than that market can immediately absorb. There also is an unresolved contract dispute in that market between Canadian producers and California regulators and customers.
Granted, there are some problems. But overall, the outlook for the Canadian gas industry is positive, and there is optimism that a supply bubble in key U.S. export markets has at last deflated.
CANADA'S SUPPLY ROLE
Most forecasters expect Canada to retain its role as the No. 1 source of U.S. gas supply during the next decade, aside from production in the Lower 48 states.
NCE Resources Group, Toronto, said in a report issued last February gas demand in North America is reaching record levels due to changing weather patterns, electrical power and transportation fuel conversions, and clean air concerns.
NCE Pres. John Driscoll forecast that U.S. productive capacity will slide sharply during the next 3 years and the U.S. likely will have to double its gas imports by 1996. Gas prices also may double in the next 3-5 years.
The NCE report said the energy policy of the Clinton administration is expected to encourage increased gas use to protect the U.S. environment, stimulate the economy, and reduce dependence on Middle East oil.
NCE predicted gas production in the U.S. will fall short of demand. The study said average gas well production in the U.S. has declined from 500 Mcfd in 1972 to 185 Mcfd at present.
"Demand for natural gas in the U.S. and the inability to produce it are on a collision course that inevitably will lead to much higher prices," Driscoll said.
The report noted U.S. gas imports from Canada have nearly tripled since 1986 and reached 2 tcf in 1992.
It forecast Canadian imports will increase to 2.2 tcf this year. First quarter volumes indicate that target will be reached or surpassed.
The NCE study is one of several that warn there likely will be times in 1993 when U.S. demand for Canadian gas will exceed deliverability.
Alberta's Energy Resources Conservation Board (ERCB) estimates Canada's main producing province has discoverable resources of 136 tcf, up 20% from earlier estimates and more than double present reserves of 59 tcf. But prices must rise to $3 (Canadian)/Mcf in 1991 dollars for recovery of 70% of its resource estimate.
The board predicted there will be gas shortages by 2002 even if prices do reach $3, and buyers will have to pay higher prices to ensure adequate supplies. It said a price of $5/Mcf would result in development of 87% of its resource estimate.
CGA, CAAP OUTLOOKS
Canadian Gas Association (CGA) said in a January demand analysis Canadian gas consumption will jump 38% between now and 2005. It forecast a growth rate of 2.5%/year to 3 tcf by 1995.
CGA forecasts a 46% hike in industrial demand during the next 13 years, fed by increased use of gas for electrical power generation and upstream industrial uses. Commercial demand in the same period will rise 34%, residential demand 25%.
Strongest demand growth is forecast in British Columbia, Alberta, Ontario, and Quebec, with more moderate growth in Manitoba and Saskatchewan. Oil and electricity, are the main energy sources in the Atlantic provinces, and there are no current plans to extend gas pipelines to the East Coast.
Canada's federal energy department forecast Canadian gas exports to the U.S. will be 2.25 tcf by 1995 and worth about $4 billion (U.S.)/year, even at discounted prices. Ottawa said Canadian production will have to increase to 4.5 tcf/year from the current 3.6 tcf to meet export demand in 1995.
Irvine J. Koop, chairman of the Canadian Association of Petroleum Producers (CAPP), said producers see a bright future for gas in the North American energy mix.
Koop cited a transition to a more balanced market and growing interest among buyers in long term contracts as the basis for their gas portfolios.
However, he said, there are still some customers, local distribution, companies and pipeline operators who question the reliability of natural gas supply.
"I see an increased role for all of us to educate the consumer. For example, in today's marketplace there are many different types of firm and interruptible contracts. The buyers should know precisely what they are getting and what risks they are taking.
"Regulators in consuming states and provinces should get a better understanding of what it means in practical, not theoretical, terms to be in a commodity market that is not in a permanent surplus state," Koop told Oil & Gas journal.
TRANSCANADA PROJECTS
Rising sales and prices and the outlook for growing demand have spawned a number of Canadian and U.S. pipeline projects targeted at markets in California and the U.S. Northeast.
TransCanada PipeLines Ltd., Calgary, in its usual state of constant construction, has spent $3.8 billion (Canadian) in the past 4 years to expand its gas pipeline system from western Canada to markets in Central Canada and the U.S. Northeast.
The company is operator and a partner in the Iroquois Gas Transmission System, which began shipping gas in 1992 into the Northeast market from TransCanada's main line connection at Cornwall, Ont. Iroquois, with capacity of 607 MMcfd, is seeking regulatory approval for an 85 MMcfd expansion of its line from an Ontario border point to Long Island, N.Y.
TransCanada also signed a conditional agreement last March with Tuscarora Gas Transmission Co, a unit of Sierra Pacific Resources Co., Reno, Nev., to lay a $130 millon (U.S.) gas pipeline to serve Reno and Northeast California. The proposed 199 mile line is to run from a Pacific Gas Transmission Co. (PGT) terminal in Oregon via California and Nevada to a point near Reno. The companies plan completion of the 120 MMcfd line in 1995.
TransCanada last April disclosed it will take a 30% interest in the proposed $600 million (U.S.) SunShine Pipeline Project to serve gas markets in central and western Florida. Coastal Corp. has a 40% interest and Florida Power Corp. 30%.
Plans call for a line in service by 1995 with an initial capacity of 325 MMcfd, which could be expanded to 800 MMcfd by 2000. TransCanada sees the investment as a stake in a developing continental gas market.
Expansions in 1992 by TransCanada and Northern Border Pipeline Co., Omaha, added about 550 MMcfd in capacity to eastern U.S. markets. TransCanada is moving about 2 tcf/year of western Canada gas to markets in Central Canada and the U.S.
Northern Border completed a $158 million (U.S.) expansion with a 146 mile line across Iowa into the Chicago area.
Canada's National Energy Board (NEB) will begin hearings June 21 in Toronto on an application by TransCanada for construction in 1994 and 1995.
The company is seeking approval to build $637.3 million in facilities, including 180 miles of pipeline and 178,000 kw of compression. The project in Saskatchewan, Manitoba, and Ontario would add 165 MMcfd of long haul capacity and 211 MMcfd of short haul firm service for Canadian and export markets.
At present, TransCanada is working on a 1993 program to add 214 MMcfd of firm capacity for completion by the start of the Nov. 1 contract year.
TransCanada and ANR Pipeline, a unit of Coastal Corp., Houston, also plan the 199 mile Mayflower Pipeline from the Iroquois system at Canajoharie, N.Y., through southern Vermont to the Boston area. The proposed line, with a price tag of $320-360 million (U.S.), would have a capacity of 350 MMcfd. TransCanada said Mayflower could be in service by late 1996 with timely approval. The pipeline companies have invited shippers to bid for capacity on the line.
Construction is to begin this month in New York state on the 155 mile Empire State Pipeline to deliver 270 MMcfd of Canadian gas to customers in western and central New York.
TransCanada received approval in 1992 for its $39 million Blackhorse extension to connect its system to the Empire line. NEB earlier rejected the project.
TransCanada also completed purchase of a 49% interest in Alberta Natural Gas Ltd. (ANG), Calgary, from PGT for $97.3 million.
ANG has begun an $82 million program in British Columbia to tie western Canada gas into an expanded PGT line near completion. To go into service Nov. 1, it will increase capacity to the U.S. Northwest and California by about 800 MMcfd.
MORE PROJECTS
Nova Corp., Foothills Pipe Lines Ltd., and ANG will spend about $500 million on system expansions in Alberta and British Columbia to link producers with the PGT expansion.
PGT Pres. Steve Reynolds has urged Alberta producers to step up their pace of drilling because his company will need gas for further planned expansion in the U.S. Northwest. Reynolds said Alberta producers must also look at deliverability concerns and consider more gas storage to service peak winter demands.
PGT is laying plans for a $200 million project to serve buyers in Oregon, Washington, Idaho, and Nevada. The added capacity of 300 MMcfd is to go to seven gas distributors and power companies with startup target in 1994 or 1995.
Reynolds cited figures showing that population in the U.S. Northwest is growing at rates of 3-5%/year, and there are big potential sales for gas marketers to serve new power generation. The Columbia River has no capacity to support more hydropower plants, and there are environmental and safety concerns about more nuclear or coal fired plants.
Reynolds said plans by Bonneville Power for gas fired generating plants amount to added gas demand of as much as 900 MMcfd.
Meanwhile, the Altamont gas pipeline group has disclosed a second 1 year delay on a project to ship gas from Alberta to Opal, Wyo., providing a link to California and markets in the U.S. Southwest.
Altamont blamed the delay to 1995 on regulatory problems. The $612 million line originally was scheduled for completion in late 1993 with a capacity of 719 MMcfd.
NEB in a Feb. 25 ruling turned down a request from Altamont to lay a 984 ft connecting link across the Alberta-Montana border. NEB said the link must be treated as part of a larger 124 mile line from Empress to the border planned by Nova for the Altamont system.
Altamont dropped a court appeal of the NEB ruling and signed an agreement under which Nova or a unit would build the Canadian part of its system.
Altamont, a combine of Tenneco Gas Inc., Amoco Canada Ltd., and Montana Power Co., also said its proposed Alberta-Wyoming line will no longer be aimed only at the California market. It would connect at an Opal hub with other lines to also serve Nevada, Utah, Colorado, and New Mexico.
ln other pipeline activity, InterCoastal Pipe Line partners agreed with Consumers' Gas Co., Toronto, on a project to add 230 MMcfd of capacity into the Toronto area by November 1996. In the first phase, an InterCoastal unit, ANR, and Interprovincial Pipe Line System Inc. (IPL), Calgary, are to provide capacity of 130 MMcfd by November 1994.
The project involves conversion of a 150 mile IPL crude oil line between Sarnia, Ont., and Toronto, mostly on Line 8, to gas. It includes connections with ANR's U.S. system at the U.S.Canadian border and to Consumers' Gas and ANR storage sites. Consumers would be the major shipper on the system.
Phase 2 would involve an additional compressor station on the IPL line to increase capacity to 230 MMcfd.
Regulatory work is proceeding by a four company combine to build the $350 million (U.S.), 210 mile Portland Natural Gas Transmission System from Quebec to Westbrook, Me. Construction of the 350 MMcfd capacity line is planned for 1996.
Equal partners in the combine are Tenneco Gas Inc., Shell Canada Ltd., Gaz Metropolitaine Ltd. of Montreal, and Granite State Gas Transmission Inc., a unit of Bay State Gas.
ALBERTA-CALIFORNIA DISPUTE
A dispute between Alberta producers and California regulators over pipeline access and long term contracts is unsettled. Alberta producers say opening the California pipeline system to all shippers would violate long term supply contracts.
Alberta Energy Minister Patricia Black visited California Public Utilities Commission (CPUC) officials and gas buyers and pipeliners in California late last month in a new effort to resolve the long dispute.
Alberta & Southern Gas Ltd. (A&S), Calgary, the gas buyer for Pacific Gas & Electric Co., San Francisco, is negotiating with Alberta producers to revise wellhead purchase contracts. Negotiators have set a target date of Nov. 1 to have new contracts in place with a 190 company supply pool.
A&S believes implementing any changes agreed to likely would take until mid-1994. They would require approval from the CPUC and the Federal Energy Regulatory Commission.
NOVA'S OUTLOOK
Nova, which operates Alberta's intraprovincial gas pipeline system, predicts gas shipments will set a higher mark in 1993 for the seventh straight year. Nova carried 961 bcf of gas in first quarter 1993, mainly for markets in the U.S. and Central Canada. The volume is up 12% from first quarter 1992. The company said it will ship 3.84 tcf this year if the current rate continues, up 13% from 3.4 tcf moved in 1992.
Nova Pres. Ted Newall said customers have required large capacity increases costing more than $1 billion during past 3 years. He expects Nova expansion spending to continue at about $500 million/year for the foreseeable future.
Work is under way to add pipeline and compressor capacity to serve PGT's expansion to California.
ARCTIC LNG
In a long range project in the Arctic, a unit of Hondo Oil & Gas Co., Roswell, N.M., proposed a 746 mile pipeline to ship gas from Canada's Mackenzie Delta to Kenai, Alas., for conversion to LNG and shipment to Pacific Rim markets.
Hondo Chief Executive Robert 0. Anderson, formerly head of ARCO, hopes to begin laying pipe in 1994 and moving gas by 1998. The system would be operated by Hondo unit Mackenzie Porcupine Pipeline Co. with a capacity of at least 2 bcfd.
William Daily, a Hondo official, said his company envisions Canadian firms will supply facilities to move gas to the Alaskan-Canadian border.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.
