Get Me Out of Here - The Outlook for Gas Supply, Demand and Pipeline Egress from Western Canada

Limited natural gas export options and persistently weak gas prices are not new phenomena in Western Canada. But market conditions in the past couple of years have become particularly untenable. Western Canadian Sedimentary Basin (WCSB) gas supply has ratcheted higher and shows signs of further growth, even as its share of export markets has been shrinking with the rise of U.S. shale gas. In-region oversupply conditions have worsened, creating transportation constraints further and further upstream in the WCSB, and prices at the regional benchmark AECO hub have seen historical lows as a result. To deal with this, and perhaps provide a long-term solution to weak natural gas prices, pipeline egress will have to expand again after a decade of decline and stagnation. New takeaway capacity is now starting to be developed. The question is, will it be enough? Today, we discuss highlights from our new Drill Down Report, which assesses the expanding gas pipeline options out of Western Canada, including when, where and how much takeaway capacity will be developed.

Canadian natural gas prices have been under siege from several angles in the past few years. First, the growth in U.S. gas supplies has been eroding Canada’s market share of its traditional export markets in the U.S. So much so, that Canada’s gas exports to the U.S. Northeast have effectively been displaced by Marcellus/Utica supplies, and those to the Midwest are being challenged by the expanding pipeline footprint out of the Marcellus/Utica as well. Canadian gas exports to the U.S. West appear to be safe for now, but they too could be coming under greater threat in the next few years as U.S. gas supplies continue rising. The end result of this growing gas-on-gas competition downstream has been deepening discounts for Canadian gas prices as measured by the AECO price benchmark.

As if it were not enough to be pushed out of your best export markets, the already-weakened Canadian gas prices are now also facing a second siege in the form of homegrown pipeline congestion in Western Canada brought on by rising supplies and diminishing spare pipeline capacity to move those supplies out of the region. How these factors play out will drive AECO prices over the next several years, and we are now tracking these complex dynamics in a comprehensive new report, the Canadian NATGAS Billboard. This weekly report compiles all the most critical data points — Canadian natural gas supply and demand, including power burn estimates, storage levels, in-region pipeline flows and utilization, and exports to the U.S. by destination region, as well as the latest information on pipeline expansions. To help put all this into perspective, the report each week will provide informed analysis and insights on the price drivers and vital developments in the Canadian natural gas market.