The collapse in crude oil prices has sent shock waves throughout the global energy industry and Canada has been no exception. Sorting through all the impacts will take time, but what’s clear is that any earlier optimism surrounding supply growth in Canada has evaporated, including for propane supply to feed the new propane export terminals on British Columbia’s coastline. Edmonton propane prices fell 58% since the start of March to as low as 10.25 cents per gallon in U.S. dollars on March 23 — the lowest level since April 2016 — and settled yesterday at 13.13 cents per gallon, according to data from our friends at OPIS. A dampened supply outlook means future export expansion plans also are being reconsidered. Today, we explore what the sharp decline in propane prices could mean for the region’s supplies and future propane exports, including from Pembina Pipeline’s nearly completed export terminal in Prince Rupert, BC.
Posts from Martin King
Canada has been facing a similar situation to the U.S. in recent years in which the production of natural gas liquids, such as propane, has been rising sharply thanks to a focus on liquids-rich gas wells in unconventional gas plays. In response to the rising bounty of propane, infrastructure development in Canada has focused on export projects, and in 2019, the completion of the new Ridley Island Propane Export Terminal in British Columbia enabled the first overseas exports of propane from Canada’s west coast, allowing Western Canadian producers to access destination markets beyond just the U.S. for the first time. Later this year, Pembina Pipelines, a developer of energy infrastructure projects across Western Canada, will complete a new propane export terminal just outside Prince Rupert, BC, further boosting propane exports to overseas markets. Today, we take a closer look at propane supply issues, Pembina’s new propane export terminal and recently announced plans to further expand the terminal’s export capacity.
Unlike most natural gas producing jurisdictions in North America facing a pullback in drilling and capital spending, producers in Western Canada appear to be doing the opposite and lining up for a year of rising production, higher average prices and additional pipeline capacity from producing basins. In short, 2020 should be a year in which supplies in the region mount a comeback after the dismal down year for supplies — and prices — that characterized 2019. A good part of that supply and pipeline capacity growth optimism has to do with a major pipeline expansion out of the Montney Basin in northeastern British Columbia that just recently entered service. Dubbed the North Montney Mainline and operated by Canada’s largest gas pipeline company, TC Energy, this vital piece of new pipeline egress from one of the most prolific unconventional gas basins in North America is setting up Western Canadian gas supplies for recovery in 2020 and beyond. Today, we continue our series with a look at what this may portend for gas supplies this year.
Natural gas supplies in Western Canada fell into a hole in 2019, registering their first decline in a half-dozen years. That drop was led by a supply pullback on TC Energy’s Nova Gas Transmission Limited (NGTL) system, the largest gas pipeline network in the region, as producers grappled with widespread pipeline maintenance, shrinking budgets, and wellhead shut-ins due to ultra-low prices, especially during the summer months. That supply hole is going to be fixed in the months ahead, thanks to a major pipeline expansion — the North Montney Mainline — that recently entered service with a direct connection into the NGTL system. With this new pipeline tapping deeper into the vast Montney formation in northeastern British Columbia, gas supplies are showing signs of pushing higher, and more upside is expected in the months ahead. Today, we examine the new pipe and what it means for gas supplies on NGTL.
Canadian oil and natural gas producers were dancing very much to the same tune as their U.S. counterparts in 2019: reduce capital spending, live within cash flow and improve returns to investors. The only major difference for Canadian gas producers is that they were forced to dance even faster due to abysmal natural gas pricing during the summer of 2019, which cast a very negative pall over the whole sector for the remainder of last year. Although the focus on spending restraint, cash flow and returns has not changed for these producers upon entering 2020, there are encouraging signals that Canadian gas pricing will be materially improved this year, especially during the summer months, supporting higher cash flows and a cautious expansion in capital spending. Today, we examine the drivers behind what might increase capital spending by gas producers and lead to an increase in supplies.
This year looks like it could be a better one for many Canadian natural gas producers. Like their brethren in the U.S., they have been forced in recent years to increasingly spend within — and even less than — cash flow as other sources of financing have dried up and investors have prioritized better returns over production volume growth. With Canadian gas producers having also faced some of the worst natural gas pricing conditions on record in 2019, far worse than those in the U.S., it is no wonder that Canadian natural gas supplies pulled back in 2019, marking the first down year for overall gas supplies since 2012. Despite what is likely still to be a cash flow and spending constrained environment in 2020, there is the potential for real upside for Western Canadian natural gas supplies this year, especially for the supply that flows into TC Energy’s Nova pipeline system. Today, we consider what may be setting the stage for gas supply gains on the Nova system in 2020 after a somewhat dismal 2019.
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.
The Western Canadian natural gas market remains a challenging environment from every angle: rising supplies, lack of available pipeline export capacity, and demand that can’t seem to rise fast enough. This has resulted in a price environment which, of late, has become the weakest in North America. The long-term solution to anemic prices and future supply growth is to increase pipeline export capacity from the region and ensure that demand continues to grow. We conclude this series today with a look at how forecasted supply and demand growth will stack up against planned export pipeline capacity additions to determine if the embattled region’s prospects can turn around in the next few years.
With another month of anemic storage injections in September, Alberta natural gas storage levels remain on track to start the next heating season at a 13-year low. Still, while Alberta gas storage has been lagging well behind in terms of average injection rates and storage levels for many months now, forward winter contract prices for the Western Canadian gas price benchmark of AECO have budged only a little. There is potential for an improvement in storage injection rates during October after a recent regulatory approval affecting the Alberta gas pipeline system, but there is little time remaining in the current injection season to make much of a difference in inventory levels going into winter. Today, we conclude this two-part series with a look at why the AECO forward market remains largely unconcerned with low Alberta gas storage levels.
Alberta natural gas storage, one of the largest regional storage hubs in North America, is experiencing one of its slowest cumulative storage injection rates in years and could be headed to a 13-year low for storage levels by the end of the current injection season. That may seem ominous for the chilly Alberta and Canadian winter heating season, not to mention gas exports to the U.S. So far, though, winter gas forward prices for the Western Canadian gas price benchmark of AECO have registered a relatively modest market response, staying in line with last winter’s average spot price. Today, we take a closer look at the market’s apparent lack of concern over low Alberta gas storage.
The options for moving Western Canada’s natural gas supply out of the region are limited. This situation has become more acute in the past few years with the upswing in associated gas production from specific areas within the sprawling region, meaning that not all the takeaway pipelines are created equal in terms of being able to move this incremental gas supply to downstream markets. One pipeline system — TC Energy’s mammoth Nova Gas Transmission Ltd. (NGTL) network — is ideally located to help out, given that big parts of it run through the fastest-growing production areas. But it’s been running full and is increasingly constrained. Will the planned expansions to the NGTL system be enough? Today, we continue our series on the Western Canadian natural gas market with a look at TC Energy’s NGTL network, the largest and most geographically advantaged of the pipeline systems in the region.
Canadian natural gas production — over 95% of which originates in Alberta and British Columbia — has averaged about 16 Bcf/d in 2018 and 2019 year-to-date, and this past January, it topped 16.7 Bcf/d, just shy of the peaks last seen in the mid-2000s. Production has stayed strong even as prices at AECO, the gas benchmark hub, have plummeted to historical lows in the face of relentless competition from U.S. gas supplies, slower demand growth locally, and pipeline takeaway constraints. Under these conditions, producers’ future growth prospects will come down to access to local and export demand, and that means there needs to be adequate pipeline capacity to reach those destination markets. Today, we continue our analysis of existing and potential pipeline takeaway capacity and utilization out of the region, this time with a focus on the Alliance Pipeline system.
The rise in unconventional natural gas supplies in Western Canada has forced the region to again confront a dilemma that it faced in the 1990s and early 2000s: not enough export pipeline capacity to move all that gas to market. Although demand for natural gas has been growing in Alberta’s oil sands and power generation markets, it has not kept pace with provincial gas supply growth, leading to oversupply conditions and historically low gas prices. The need to export more of the gas to other parts of Canada and the U.S. is driving some pipeline expansions in the region. The question is, will they be enough? Today, we provide an update on the utilization of existing export routes, as well as the prospects (or lack thereof) for takeaway expansions, starting with Westcoast Energy Pipeline.
Growing natural gas supplies in Western Canada have been pressuring gas prices and export pipelines in the region, but there are signs that at least some of that supply-growth pressure is being offset by rising gas demand. Though the region is pegged as primarily a winter gas market — where local demand only rises when the temperature falls into the winter extremes — non-weather-related demand for natural gas has been growing in Western Canada and looks to have further upside in the years ahead. Today, we delve into Alberta and British Columbia’s gas demand trends and their potential to help balance the region’s oversupply conditions.
Once consigned to a flat or declining profile, natural gas production in Western Canada has been increasing steadily since 2012, to the extent that it has now begun to stretch the ability of the existing pipeline network to the breaking point. Most striking is that this expansion in production has been taking place in an era of declining natural gas prices and weakening basis for Western Canada’s primary natural price marker, AECO, and rising and relentless competition from U.S. gas supplies in several of Canada’s key domestic and export markets. If the pricing, pipe egress and export situation has become so dire, why are producers still drilling for and pumping out even more natural gas? Today, we address this question in the second part of our series investigating Western Canada’s natural gas supply and demand balance.