Alliance

Western Canadian natural gas producers are increasingly facing oversupply conditions and price volatility. While competition and pushback from growing U.S. shale gas supply continues to be a factor, producers are now also contending with fresh problems closer to home — namely transportation constraints right where production is growing the most, in central Alberta. This fall, the Alberta market experienced extreme bottlenecks that left production stranded and sent area gas prices reeling. The ramp-up of winter heating demand has since helped ease the constraints, but the problems are likely to return in the spring when demand is lower, leaving producers exposed to the risk of severe price weakness again in 2018 and limited in their ability to grow supply. Today, we continue our look at what’s behind the local constraints and the implications for production growth and prices in Western Canada.

Oil production from the North Dakota Bakken shale reached 639 Mb/d in May 2012. Associated natural gas production was 651 MMcf/d. So far oil production has been the main focus for Bakken producers. Gas production has been an afterthought. So much so that 1/3rd of it is flared.  A new BENTEK study for North Dakota energy policymakers (we provide a link to the study) indicates natural gas volumes in the region will increase substantially in the coming years. The obvious market for this gas is to displace Canadian gas flowing through the Bakken to get to the Midwest. Today we look at the coming battle for pipeline capacity between producers in the Bakken and those in Canada.

At the recent Platts Oil and Gas Conference in Denver, the reoccurring theme was outbound capacity constraint.  The area needs a lot more crude oil pipelines and rail terminals to mitigate regional oil price crashes (see Bakken’ and a Rollin’ at Clearbook and Guernsey).   The natural gas situation is worse, with more than one-third of natural gas on the North Dakota side of the Bakken being flared.  The region needs more gas gathering systems and more takeaway capacity.