Get Me Out of Here, Part 3 - Prospects for Natural Gas Demand Growth in Western Canada

Growing natural gas supplies in Western Canada have been pressuring gas prices and export pipelines in the region, but there are signs that at least some of that supply-growth pressure is being offset by rising gas demand. Though the region is pegged as primarily a winter gas market — where local demand only rises when the temperature falls into the winter extremes — non-weather-related demand for natural gas has been growing in Western Canada and looks to have further upside in the years ahead. Today, we delve into Alberta and British Columbia’s gas demand trends and their potential to help balance the region’s oversupply conditions.

Today’s blog is the third in our series examining the natural gas balance in Western Canada and how this region has been coping with the intense — and still growing — competition from expanding natural gas supplies in the U.S. In Part 1, we began with an overview of supply and demand factors affecting gas prices at AECO, Western Canada’s benchmark hub. In short, the growth in gas supplies there has pushed the existing pipeline delivery network in the region to its limit, creating a situation of too much supply pushing on too little pipeline export capacity. And that supply growth has continued even as natural gas prices have weakened in the past few years. In Part 2, we looked at the specific drivers behind the rising natural gas supplies in Western Canada, and concluded that despite low gas prices, producers have squeaked through by reducing costs and consolidating development in the most economically attractive corridors of the Montney, Duvernay and other unconventional plays. That’s also meant focusing drilling activity in crude oil and NGL-rich areas. That helps boost producers’ margins but yields significant volumes of associated natural gas as a by-product — to the point of leaving the region oversupplied and takeaway-constrained on the gas side, and with historically low — even negative — gas prices.

One of the best ways to help solve a local oversupply issue, given the takeaway constraints, would be to consume more natural gas locally, especially when prices are low. With all of the supply growth in Western Canada coming from British Columbia (BC) and Alberta, how has gas demand in these two westernmost provinces been shaping up in recent years? BC meets nearly all of its electricity demand with hydroelectric sources and has few energy-intensive industries, plus most of its population is near the coast, where the climate is milder. As a result, gas demand in BC (red bars in left graph in Figure 1) is fairly small and has been idling between 0.6 and 0.8 Bcf/d since 2010. With the province’s future focus on further ramping up renewable sources of energy and lowering its carbon footprint, it seems safe to say that BC gas demand will be changing little in the years ahead.

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