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NEB Sees Potential for 66% Jump in Gas Exports to U.S.

NEB Sees Potential for 66% Jump in Gas Exports to U.S.

A 66% jump in Canadian exports is conceivable-all the way to an 18% share of the total gas market in the United States, the National Energy Board says in a landmark forecast. A new NEB report, Canadian Energy Supply and Demand to 2025, says exports could climb to a peak of 5 Tcf/year in 2018 if prices and technology make gradual but steady improvements.

Even at its most conservative, with prices and technology held back while U.S. output thrives in the Gulf of Mexico and the Rocky Mountain region, the board projects Canada's gas exports at 4.4 Tcf annually by 2013, or still a 42% increase from 1998 shipments of 3.1 Tcf to the U.S.

The report, an exercise done about every five years under an NEB mandate to be a national supply watchdog, relies on a canvass of industry and expert opinion in Canada and the U.S. as well as the board's own data. The new projections reflect a grand strategy that developed in the Canadian industry since the last report in 1994, which switched emphasis from its traditional top export destination of California over to the midwestern and northeastern states.

While no increases are forecast in export pipeline capacity to California, the Canadians are expected to keep busy filling up Alliance Pipeline Project after its completion in October 2000 plus additions to the TransCanada and Foothills-Northern Border systems done last winter.

Exports to the Pacific Northwest are forecast to be "fairly constant" at about 400 Bcf/year. Rising output in the U.S. Rocky Mountain region are expected to displace Canadian gas in California, where exports are projected to decline slightly into a range of 500-660 Bcf over the next 25 years.

Driven by electric power generation and growth in the energy market share held by gas, exports to the Midwest are expected to climb to a peak of 2.15 Tcf-2.64 Tcf annually, depending on forecasters' beliefs about prices and technology. Canadian sales into the U.S. Northeast are projected to reach 1.2 Tcf, with 30-40% being exported from emerging gas sources offshore of Nova Scotia and potentially the Grand Banks of Newfoundland.

The projections assume no further additions to Midwest-bound Canadian pipeline capacity beyond Alliance, which has been stressing that the 1.3 Bcf per day it will hold as of October 2000 will only be an initial capacity, capable of being increased with additions of compressor power. The Alliance project, now under construction, comes on top of the 1.1 Bcf added to TransCanada and Foothills-Northern Border. Export routes to the U.S. Northeast from western Canada, now being sorted out in project rivalry before the NEB and Washington's Federal Energy Regulatory Commission, are expected to add about 600 MMcf/d of capacity by 2000. The big growth in exports to the U.S. Northeast is projected to come from Canada's East Coast, with capacity doubling or even nearly tripling into a range of 1.1-1.35 Bcf/d.

The lion's share of the eastern Canadian gas supplies are expected to travel by Maritimes & Northeast Pipeline, now under construction. But the NEB learned from its industry consultations to take seriously the possibility of a new technology, now under intensive study by a group including Mobil Canada and BG International (formerly British Gas), to tap gas associated with oil projects on the Grand Banks of Newfoundland. Titled Coselle, for coiled carousel, the method being developed by the Calgary engineering firm of Cran & Stenning Technology Inc. applies the techniques of bulk container shipping of merchandise to compressed natural gas with a promise of freight rates comparable to pipeline tolls. The NEB also points to continuing work by Shell and Syntroleum in Bangladesh and Washington State on exploiting remote or "stranded" gas deposits to liquid fuels with a process known as Fischer Tropsch. While not disputing predictions that Canadians will be unable to fill all their new export delivery capacity for a period, the NEB foresees no serious strain on their resource endowment. Over the 25-year period of the forecast, the board sees new sources developing on top of acceleration of drilling into the range of 6,000-7,700 western well completions by 2013.

The drilling acceleration is already under way. Despite severely depressed oil prices and restricted producer budgets in the first quarter, in excess of 2,500 gas wells have been completed in western Canada so far this year or up to 500 more than in the same period of 1998 (with all reporting agencies showing an increase, although detailed figures depend on who is doing the counting). The NEB also expects coal-bed methane to come into production in Canada over the next 25 years. By 2025, work under way by a variety of co-operative industry and government research and development programs are expected to yield up to 10 Bcf/d in production from coal beds that carpet much of Alberta, eastern British Columbia and southern Saskatchewan. Current projections of the Canadian endowment of economically recoverable coal-bed methane range from 75 Tcf to 261 Tcf, with the NEB occupying the most cautious end of the spectrum. The NEB expects Canadian supply costs for gas-counting all expenses for exploration, development, production, operations, taxes, royalties and producer returns-to climb but stay competitive. Canadian supply costs are projected to rise only by gradual stages into the range of US$2-$2.25/Mcf until and unless the resource base and technology are strained late in the 25-year forecast period. The NEB projections show export prices rising but not at the spectacular rate of the past 18 months, when market anticipation of new pipeline capacity cut differentials between Canadian and U.S. prices from a peak of US$2/Mcf into a range of 25-50 cents. By 2025, prices at the international boundary are expected to reach US$2.50-$3.35 at the Monchy crossing for Chicago-bound pipelines and US$3.60-$4.40 at the Niagara benchmark for U.S. Northeast deliveries.

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