Daily Blog

Burning Down the House - Wildfires, Pipeline Maintenance Punish Western Canadian Gas Production

Western Canada’s natural gas production has been on a roll in the past couple of years, reaching a record 17.3 Bcf/d in 2022. Another year of strong growth was expected in 2023, but Mother Nature had other plans — as usual. First, a milder-than-average heating season left plenty of gas in storage, pushing natural gas prices lower across North America. Second, tinder-dry conditions in some of the best gas production areas in Alberta and British Columbia sparked what so far has been a very active wildfire season — and forced producers to curtail their gas output numerous times in May and June. From our early expectations for production growth of 1.2 to 1.4 Bcf/d this year, the impacts from wildfires and a healthy dose of pipeline maintenance has chopped our 2023 production growth outlook to just 0.4 Bcf/d. As we discuss in today’s RBN blog, this slowdown in growth is exactly the opposite of what’s needed to avoid a runup in prices. Strong production momentum will be required into 2024 and 2025 to deal with the startup of the LNG Canada export facility, ongoing Canadian gas demand growth and pipeline exports to the U.S.

Gas production in Western Canada had been undergoing something of a renaissance in the past couple of years. A longed-for recovery in natural gas prices finally started to materialize late in 2021. Painful pipeline maintenance flow restrictions, which had severely handicapped the benchmark AECO price for several summers, were beginning to ease as more regional pipeline capacity was added. And incredible strides were being made by producers in advancing wellhead productivity and reserve recovery from unconventional gas plays, including the celebrated Montney formation.

It all came together in 2022, capped off with record gas production that year of 17.3 Bcf/d (dashed red circle in Figure 1), a gain of more than 1.2 Bcf/d (~8%) over 2021, also a record in terms of year-on-year production growth. With producers starting to set their sights on additional growth this year and in 2024 as Western Canada gears up for exports of LNG in 2025 via LNG Canada in British Columbia (BC), additional strong growth was being anticipated to ensure sufficient gas for LNG exports, Canadian consumption and pipeline exports to the U.S.

Join Backstage Pass to Read Full Article

Learn More