U.S. use of Canadian gas to rise 53% by 2015

• Outlook for Canada's gas exports to the U.S., marketable production

North American natural gas markets are changing significantly, as evidenced by the number of new pipelines and expansion projects taking shape (OGJ, Aug. 25, 1997, p. 29).

Changes in market forces, integration of the North American market, continuation of deregulation and restructuring in the electricity generation sector, and expectations that environmental concerns will boost gas consumption are key elements affecting the future long-term outlook for natural gas markets, according to a recent study by the Canadian Energy Research Institute (CERI).

These changes have long-term implications for corporate and government policy makers as interregional flow of competitively priced gas increases.

CERI's study pointed out that emerging trends in capacity restructuring have caused concerns for market participants that find it increasingly difficult to keep up with potentially important changes in the gas market. As a result, during 1996-97, there were a record number of proposals for new pipeline and expansion projects, many of which were intended to remove system bottlenecks and increase interregional flow. The Midwest U.S. is the focal point for many of these projects.

Gas pipeline capacity

Capacity restructuring, in the form of "decontracting" and/or capacity turnback, is a very important issue, as a significant number of transportation contracts will come up for renewal during the next 5 years-about 50% of all contracts in the Lower 48 states.

CERI's study forecasts sustained gas demand growth during 1998-2015 at about 2.2% in Canada and 1.8% in the U.S. The highest growth rates are expected in the use of gas to generate electricity.

During that same period, the study revealed that growth in gas-for-electricity will account for roughly 26% and 41% of the increase in gas consumption in Canada and the U.S., respectively. The industrial sector shows strong growth throughout the forecast period and accounts for 53% of Canada's increase in gas consumption and 36% of the Lower 48's.

Gas production

Canadian production is projected to grow at an average rate of 2%/year, says CERI. Alberta will remain Canada's dominant gas producing region; however, British Columbia and resource areas off Canada's East Coast are forecast to significantly increase their share of Canadian production.

CERI predicts that, as 2015 draws near, a large portion of British Columbia's output will flow into Alberta to supply pipeline projects designed to move gas into domestic and export markets east of the Alberta/Sas- katchewan border.

Substantial expansion of Canada's export capacity into the Midwest and Northeast by yearend 2000 will better connect the Western Canada sedimentary basin to Lower 48 markets.

Continental U.S. gas production is projected to grow at an average rate of 1.8%/year. The Gulf Coast offshore area will continue to be a dominant producer, but gas output from the Rocky Mountain region will also increase substantially during 1998-2015, with growth rates approaching 4%/ year, predicts CERI.

Canada's U.S. market share

During 1995, Canada delivered an estimated 2.78 tcf of gas into Lower 48 markets. This represented about 52% of Canada's 5.4 tcf of marketable gas production. Of this export volume, 41% was directed to the western U.S., 36% to the Midwest, and 23% to the Northeast.

By 2015, gross exports of Canadian gas are projected to increase to 4.3 tcf/year, of which 28% will be directed to the western region, 46% to the Midwest, and 26% to the Northeast (including 5% from the East Coast offshore area).

Overall, Canadian exports account for about 14% of Lower 48 gas requirements. This is expected to peak at 15% in 2010, the CERI study shows.

However, exports of western Canadian gas into western U.S. markets will increase slowly-much more slowly than gas demand in the region-causing Canada's share of this market to slip from 51% in 1995 to 35% by 2015. The U.S. Rocky Mountain supply area will benefit the most from this shift.

Deliveries of western Canadian gas into Midwest markets will increase by 820 MMcfd by 2000 and an additional 1.48 bcfd by 2010. Canada's share of the Midwest market will grow from 17% in 1995 to 28% in 2015.

Similarly, the U.S. Rocky Mountain, Arkoma basin, and north-central supply areas will increase their shares of this market. As larger volumes of Gulf Coast gas are consumed locally or shipped to the South Atlantic or Northeast markets, the Gulf Coast/Arkoma share of the Midwest market will decline significantly over the period.

Canada's East Coast offshore re- sources are scheduled to begin production by 2000, contributing to the increase in Canadian exports to the Northeast U.S. Canada's share of this market will jump to 28% in 2015, compared with 21% in 1995.

CERI's study also shows that Gulf Coast gas supplies will grow substantially, allowing Gulf Coast producers to retain their 65% share of the Northeast market.

The Anadarko and Appalachian basins' shares of this market are projected to decline over the forecast period. CERI estimates that production from the Appalachian supply area will remain flat.

Uncertainty

CERI analysts say deregulation and restructuring in electricity markets are creating considerable uncertainty with regard to the timing and regional distribution of gas demand growth in end-use markets. In an attempt to quantify this uncertainty, CERI used an alternate projection of gas demand in its calculations.

"In the sensitivity case, which shows greater gas demand in the Midwest and Northeast market areas, deliveries of Western Canadian gas into the Midwest markets increase by 1.22 bcfd by 2000 (relative to 1995) and an additional 1.69 bcfd by 2010."

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