The lineup that doubled the number of proposals for new terminals to import liquefied natural gas into the United States over the past 18 months have been on the right track, according to the dean of Canadian supply forecasters.

The LNG activity is a must — and should spread into Canada — in order to make sure the North American continental market avoids disruptive shortages within about 10 years, according to the latest analysis from the Canadian Gas Potential Committee.

“Supply development from the Western Canada Sedimentary Basin is resource-constrained and other supply sources will develop slowly,” said a paper by the CGPC’s senior analyst, GasEnergy Strategies Inc. president Rob Woronuk.

The Calgary consultant, a household name within the Canadian gas sector, sounded a warning as he put out his paper while the U.S. Energy Information Administration compiled its latest 25-year outlook projections.

As of December the EIA counted 32 active proposals — up from 16 in August of 2002 — to build new LNG terminals across North America, including 11 sites in Mexico and Canada primarily intended to land supplies destined for the U.S. The import capacity sought by the current lineup has tripled to 15 Tcf per year from 5 Tcf in mid-2002.

“Both Canada and the United States must endeavor to curtail gas demand, import liquefied natural gas and develop energy alternatives,” Woronuk wrote. While not predicting exactly how much LNG import capacity will be needed, he suggested efforts build terminals should be encouraged in order to expand the network in an orderly fashion before problems develop rather than wait for an emergency to fire a starting gun on a race.

Canadian suppliers are already scrambling. “To provide the maximum time for these initiatives (conservation, LNG and alternatives) to take effect it will be necessary to maintain high levels of producer activity in the WCSB, connect frontier gas basins and aggressively pursue the development of non-conventional gas resources such as coalbed methane,” Woronuk wrote.

His projections show Canadian supplies, including foreseeable northern and offshore production developments, falling short of market requirements as of early 2014.

Drilling results in the traditional gas areas of Canada’s western provinces will continue to be the critical factor even if Arctic projects proceed on time, Woronuk said. “The endowment of the WCSB represents over 70% of Canada’s total conventional gas resources. The second-largest basin, the Mackenzie-Beaufort, accounts for less than 8% of the endowment.”

The committee continues to work on its next appraisal, due to be complete in 2005, of the Canadian gas endowment and the amount of it likely to be recoverable as production. Woronuk showed no signs of changing his views as a result of the research so far. Despite a budding exploration revival among senior firms with in-house expertise at hunting large targets and the deep pockets to do it, the majority of Canadian wells continue to tap shallow gas pools as the low-cost way to keep most shareholders happy.

The extent of shallow reserves still awaiting drilling is difficult to gauge and coalbed methane remains so new to Canada that it will be years before it is well enough understood to generate reliable estimates of its potential, Woronuk indicated. In the meantime Alberta supplies, still Canada’s mainstay, accounting for about 80% of production and reserves, still appear to be entering overall decline at an annual rate of 1%-2%.

“Given our current understanding, the shortfalls in these gas supply-demand scenarios exceed even the most optimistic projections of gas supply from coalbed methane,” Woronuk wrote. “Canada, like the U.S., must seriously consider importing liquefied natural gas and developing alternative energy supply sources to natural gas.”

EIA, taking its cue from CGPC and the National Energy Board, made sharp cuts in its expectations for Canadian gas supplies and predicted LNG imports into the U.S. will exceed pipeline deliveries from Canada starting in 2015.

The Canadians suggest that the EIA is also right to be more optimistic on another front, by forecasting that the proposed Mackenzie Valley pipeline will at last be built and Arctic gas will enter the market by 2009 without a repetition of the 1970s collapse of the northern project. While not enough to make up for the Alberta decline rate, northern supplies are expected to arrive at a rate of 1.6 Bcf/d or possibly more.

Canadian Arctic gas looks like a reasonable bet at least by historical standards, according to a prominent veteran: Roland Priddle, former chairman of the NEB and the CGPC, and now chairman of an inquiry into ending a 30-year moratorium against drilling offshore of British Columbia.

In a paper crafted shortly before the B.C. case got under way, Priddle wrote “compared to the ’70s I see a lot of positive change in the environment for (Arctic) project decision-taking.” Priddle pointed to the stable Canada-U.S. energy relationship that has evolved under free-trade agreements, political understanding in Ottawa that governments should “facilitate” rather than try to direct the process, and collaboration among the multiple regulatory agencies involved in northern development.

Above all, “there is a functioning, anonymous, North American gas market continuously transmitting signals to producers, transporters and consumers, leaving them to interpret and anticipate those signals. This contrasts sharply with the ’70s when ‘the market’ comprised less than a score of large pipeline corporations and, behind them, all of the managements, personalities, alliances and contracts that were involved.”

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