Canadian natural gas production — over 95% of which originates in Alberta and British Columbia — has averaged about 16 Bcf/d in 2018 and 2019 year-to-date, and this past January, it topped 16.7 Bcf/d, just shy of the peaks last seen in the mid-2000s. Production has stayed strong even as prices at AECO, the gas benchmark hub, have plummeted to historical lows in the face of relentless competition from U.S. gas supplies, slower demand growth locally, and pipeline takeaway constraints. Under these conditions, producers’ future growth prospects will come down to access to local and export demand, and that means there needs to be adequate pipeline capacity to reach those destination markets. Today, we continue our analysis of existing and potential pipeline takeaway capacity and utilization out of the region, this time with a focus on the Alliance Pipeline system.
In this blog series, we’ve been assessing the fundamentals behind the troubled Western Canadian gas market and prospects for things to turnaround. As we said at the start, in Part 1, Canada’s natural gas prices and exports have long been under pressure from rapidly growing gas supplies in the Marcellus/Utica, Bakken and other U.S. production regions. But production from the Western Canadian Sedimentary Basin (WCSB) — nearly all of which comes from Alberta and British Columbia (BC) — has continued to climb nevertheless, leading to an oversupply situation and pipeline constraints. The result has been one of the weakest gas price environments in Western Canada in 20 years. Daily spot prices at the AECO trading hub in 2018 averaged C$1.44 per gigajoule (GJ), or US$1.17/MMBtu, the lowest annual average since at least 2005, according to historical price data from Bloomberg. The rock-bottom prices have persisted in 2019, with June averaging only C$0.54/GJ (US$0.43/MMBtu), the lowest of any month on record.
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Despite prices scraping along the bottom, WCSB production volumes rose through 2018 and early 2019, even approaching historical peaks near 17 Bcf/d that haven’t been seen since the mid-2000s. As we discussed in Part 2, producers have employed a number of tactics to remain viable in the undoubtedly difficult pricing environment, including efforts to lower production costs and concentrate their horizontal drilling in more economically attractive plays such as the Montney formation in northeastern BC and western Alberta, which also produce higher-value crude oil and NGLs. In fact, liquids production has become the focus, and — as in the Permian and Bakken, for example — natural gas has become a sort of by-product. As a result, even more gas supply is flooding the market.
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About the song
“Get Me Out of Here,” written by Stephan Jenkins, is the eighth track on the fifth studio album, Dopamine, by alternative rock band Third Eye Blind. The song and album were released in summer 2015 and reached #1 on the Billboard Independent Albums chart shortly after release. The song, along with many others on the Dopamine album written by Jenkins, took more than six years to finally reach completion, due to Jenkins’s frequent bouts with writer’s block and the band’s heavy touring schedule.
Third Eye Blind is an American alternative rock band formed in San Francisco in 1993. Originally consisting of the songwriting duo Stephan Jenkins and Kevin Cadogan, the band has also included Arion Salazar and Brad Hargreaves; the group released its first studio album in 1997. After the release of the band’s second album in 1999, Cadogan left the band, and numerous additional personnel changes have taken place over the years. Jenkins remains responsible for most of the band’s songwriting efforts, but frequently invites collaborations with other songwriters and other members of the band. Third Eye Blind remains active to this day, touring and releasing occasional extended singles.
