The Western Canadian natural gas market remains a challenging environment from every angle: rising supplies, lack of available pipeline export capacity, and demand that can’t seem to rise fast enough. This has resulted in a price environment which, of late, has become the weakest in North America. The long-term solution to anemic prices and future supply growth is to increase pipeline export capacity from the region and ensure that demand continues to grow. We conclude this series today with a look at how forecasted supply and demand growth will stack up against planned export pipeline capacity additions to determine if the embattled region’s prospects can turn around in the next few years.
By way of a brief review, we began our analysis of the Western Canadian gas market in Part 1 by considering the factors surrounding the region’s very weak natural gas prices. U.S. gas supplies have been beating back Canadian gas from its export markets, while a resumption in Canadian gas supply growth has strained pipeline capacity leaving the Western Canadian Sedimentary Basin (WCSB), and these two factors combined have been severely punishing for prices at AECO, the region’s benchmark gas trading hub. Part 2 explained that, even in a discouraging price environment, Canadian gas supplies have continued rising in the past few years as gas producers focused their efforts on lowering costs and increasing wellhead productivities and reserves from unconventional drilling in economically attractive crude oil and NGL-rich plays, such as the Montney and Duvernay. The end result has been rising supplies of gas as more of a by-product of that crude- and liquids-focused drilling. By comparison, regional demand growth has lagged behind, as we discussed in Part 3, though incremental demand, primarily from the power generation sector and oil sands activities in Alberta, has helped to soak up some of the excess supply.
Part 4 began our review of existing and planned pipeline capacities for moving gas out of Western Canada, starting with a look at Enbridge’s Westcoast Energy Pipeline (WEP) system (blue line in Figure 1 below), which has been operating at a reduced pressure following a rupture last fall (see Chain Reaction and Baby, I Need Your Gas). With pipeline operations on WEP expected to return to normal by November, WEP will likely be back to full utilization of its existing capacity again soon, pending only a modest capacity expansion of 0.19 Bcf/d by late 2021. Export capacity on the Enbridge and Pembina-owned Alliance Pipeline (pink line), discussed in Part 5, also has waned because of rising gas supplies flowing into the U.S. portion of Alliance from the Bakken play in North Dakota.
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