On the Border - Capacity, Demand Constraints Throttle Canadian Gas Imports to Chicago Area

Canada’s natural gas exports — which have been pushed out of the supply-rich U.S. Northeast in recent years — are also facing challenges in Western U.S. markets. Growing supply from North Dakota’s Bakken Shale is increasingly competing for capacity on the same transportation routes as imports and is targeting the same downstream markets. Meanwhile, the rise of renewable energy in the West region from wind and solar farms is limiting gas demand in those target markets. What does that mean for imports from Canada? Today, we look at how these factors are affecting Canada’s exports to the Western U.S.

This is Part 3 of a series updating our analysis of changing gas flows along the U.S.-Canada border. As we noted in Part 1, Canadian gas production has been climbing in recent years and hit 10-year highs by late 2017. Historically, about a third of that gas has found a market across the border in the U.S. But Canadian producers are facing ever-increasing competition from soaring U.S. gas supply, led by the Marcellus/Utica shales in the Northeast. On the whole, Canadian exports to the U.S. in recent years have managed to remain relatively stable in the 5.5-6.0 Bcf/d range on an annual basis. But regional dynamics tell a much different story. In Part 2, we zeroed in on border flows in the Northeast, which flipped from being strictly a net importer of gas from Canada to being a net exporter on most days. Over the past decade, Marcellus production has not only displaced the more than 2.0 Bcf/d of Canadian gas supply that once flowed to the Northeast market, but also has made the Northeast region a net exporter of gas supply to Canada for most months out of the year.

Today, we continue our regional analysis with a look at border flows in the U.S. West. Canadian exports to the West have been inching higher each year over the last four years as Alberta producers have been squeezed out of their traditional destinations in the Northeast. The Western U.S. is primarily a demand market with less native supply than some of the other regions, and also fewer long-haul pipelines to connect its demand markets to supply basins. Of the regional pipelines, only a few can bring gas supply to California, the second-largest gas demand market in the U.S. Additionally, until mid-2017, gas production volumes in the closest U.S. producing region to the West Coast — the Rockies — were largely stagnating.

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