Fixing a Hole, Part 2 - The Outlook for 2020 Western Canadian Natural Gas Supplies

Unlike most natural gas producing jurisdictions in North America facing a pullback in drilling and capital spending, producers in Western Canada appear to be doing the opposite and lining up for a year of rising production, higher average prices and additional pipeline capacity from producing basins. In short, 2020 should be a year in which supplies in the region mount a comeback after the dismal down year for supplies — and prices — that characterized 2019. A good part of that supply and pipeline capacity growth optimism has to do with a major pipeline expansion out of the Montney Basin in northeastern British Columbia that just recently entered service. Dubbed the North Montney Mainline and operated by Canada’s largest gas pipeline company, TC Energy, this vital piece of new pipeline egress from one of the most prolific unconventional gas basins in North America is setting up Western Canadian gas supplies for recovery in 2020 and beyond. Today, we continue our series with a look at what this may portend for gas supplies this year.

It has been much discussed in the RBN blog space that 2019 was a very bad year for Western Canadian natural gas producers. Regional pipeline constraints, record low gas prices in some months, declining access to capital, lower spending and ever-stiff competition from U.S. gas supplies led to the unavoidable outcome of a supply pullback — the first time that happened in half a dozen years. Our recent Don’t Stop blog series provided numerous reasons for Canadian gas producers to be more optimistic about 2020, and Part 1 of this series described a critically important infrastructure project:  the North Montney Mainline (NMM), which TC Energy brought into service at the end of January. The area of the Montney gas play served by the NMM has only been tapped to a limited degree in the past few years by smaller competing pipelines, but now has a major boost in egress capacity, with up to 2 Bcf/d on the NMM once the new pipe is fully operational later this year. We further described in Part 1 some of the supply impacts from the recent start-up of the NMM and how this has begun to set the stage for higher supplies in 2020.

In this second and concluding part of our discussion on the NMM, we take a closer look at some additional pipe flow and capacity data that sheds some light on the potential for additional supply going forward for the remainder of this year. As in Part 1, the Figure 1 map shows the newly completed Aitken Creek section of the NMM (blue line), the almost-finished Kahta section (dashed black-and-white line) and the NMM’s relation to an important pipeline delivery corridor on the NGTL system referred to as Upstream James River (USJR; black rectangle in inset map).