Get Me Out of Here - Expanding Outlets for Western Canadian Gas Supply

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The Outlook for Gas Supply, Demand and Pipeline Egress

Canada’s natural gas prices and exports have been under increasing pressure from rising gas supplies in the U.S., forcing a deepening discount for Canada’s primary gas price benchmark, AECO, versus U.S. benchmark gas prices. This situation is being made more complicated by homegrown developments in the form of increasing unconventional gas supplies from the Montney and related plays in Western Canada and a lack of sufficient pipeline takeaway capacity from this major producing region.

In this Drill Down report, we will more closely examine the relationship between pipeline takeaway capacity and weak AECO prices by starting with the drivers of the recent resurgence in supply growth, despite what has been very poor pricing in the past few years. Next, we will consider localized prospects for soaking up some of that gas supply growth in the form of gas demand in Alberta, Canada’s sole growing market for natural gas. Beyond local demand, how all that gas supply is able to exit the WCSB, now and in the future, is then tallied up by considering current and future takeaway pipeline capacity additions for each of the major gas pipelines mentioned above that provide egress from Western Canada. We wrap up the analysis by pulling together RBN’s assessments of future unconventional gas supply growth, Alberta demand growth, and the full spectrum of pipeline takeaway capacity expansions, and considering what this could all mean for future gas prices in Western Canada.

You can keep up with these evolving dynamics in our weekly Canadian NATGAS Billboard report.

Key take-aways from the report include:

  • Since hitting a low in 2012, Western Canada natural gas production has climbed 2.4 Bcf/d, running head-on into rising U.S. gas supplies in traditional export markets.
  • Combined with insufficient export pipeline capacity, the resulting constraints have led to extremely weak benchmark Canadian natural gas prices since 2017.
  • With Western Canada gas supplies from unconventional plays expected to rise a further 20% by 2023, new export pipeline capacity expansions are being developed to alleviate throughput constraints.
  • After allowing for rising gas demand in Alberta, the additional export pipeline capacity expected by the end of 2023 may still be insufficient for dealing with rising supplies, creating the potential for more overhead price resistance for benchmark Canadian gas prices.

"Get Me Out of Here" is included in RBN Energy’s 2019 Drill Down report series, a suite of reports covering many of the key issues expected to impact the markets for crude oil, natural gas and natural gas liquids. Drill Down reports are part of RBN Backstage Pass™ premium resources that also include Blog Archive Access, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. By subscribing to RBN’s Backstage Pass™ Premium Services, you plug into our network and get direct access to our premium resources.

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