A 66% jump in Canadian exports is conceivable-all the way to an18% share of the total gas market in the United States, theNational Energy Board says in a landmark forecast. A new NEBreport, Canadian Energy Supply and Demand to 2025, says exportscould climb to a peak of 5 Tcf/year in 2018 if prices andtechnology make gradual but steady improvements.

Even at its most conservative, with prices and technology heldback while U.S. output thrives in the Gulf of Mexico and the RockyMountain region, the board projects Canada’s gas exports at 4.4 Tcfannually by 2013, or still a 42% increase from 1998 shipments of3.1 Tcf to the U.S.

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

While no increases are forecast in export pipeline capacity toCalifornia, the Canadians are expected to keep busy filling upAlliance Pipeline Project after its completion in October 2000 plusadditions to the TransCanada and Foothills-Northern Border systemsdone last winter.

Exports to the Pacific Northwest are forecast to be “fairlyconstant” at about 400 Bcf/year. Rising output in the U.S. RockyMountain region are expected to displace Canadian gas inCalifornia, where exports are projected to decline slightly into arange of 500-660 Bcf over the next 25 years.

Driven by electric power generation and growth in the energymarket share held by gas, exports to the Midwest are expected toclimb to a peak of 2.15 Tcf-2.64 Tcf annually, depending onforecasters’ beliefs about prices and technology. Canadian salesinto the U.S. Northeast are projected to reach 1.2 Tcf, with 30-40%being exported from emerging gas sources offshore of Nova Scotiaand potentially the Grand Banks of Newfoundland.

The projections assume no further additions to Midwest-boundCanadian pipeline capacity beyond Alliance, which has beenstressing that the 1.3 Bcf per day it will hold as of October 2000will only be an initial capacity, capable of being increased withadditions of compressor power. The Alliance project, now underconstruction, comes on top of the 1.1 Bcf added to TransCanada andFoothills-Northern Border. Export routes to the U.S. Northeast fromwestern Canada, now being sorted out in project rivalry before theNEB and Washington’s Federal Energy Regulatory Commission, areexpected to add about 600 MMcf/d of capacity by 2000. The biggrowth in exports to the U.S. Northeast is projected to come fromCanada’s East Coast, with capacity doubling or even nearly triplinginto a range of 1.1-1.35 Bcf/d.

The lion’s share of the eastern Canadian gas supplies areexpected to travel by Maritimes & Northeast Pipeline, now underconstruction. But the NEB learned from its industry consultationsto take seriously the possibility of a new technology, now underintensive study by a group including Mobil Canada and BGInternational (formerly British Gas), to tap gas associated withoil projects on the Grand Banks of Newfoundland. Titled Coselle,for coiled carousel, the method being developed by the Calgaryengineering firm of Cran & Stenning Technology Inc. appliesthe techniques of bulk container shipping of merchandise tocompressed natural gas with a promise of freight rates comparableto pipeline tolls. The NEB also points to continuing work by Shelland Syntroleum in Bangladesh and Washington State on exploitingremote or “stranded” gas deposits to liquid fuels with a processknown as Fischer Tropsch. While not disputing predictions thatCanadians will be unable to fill all their new export deliverycapacity for a period, the NEB foresees no serious strain on theirresource endowment. Over the 25-year period of the forecast, theboard sees new sources developing on top of acceleration ofdrilling into the range of 6,000-7,700 western well completions by2013.

The drilling acceleration is already under way. Despite severelydepressed oil prices and restricted producer budgets in the firstquarter, in excess of 2,500 gas wells have been completed inwestern Canada so far this year or up to 500 more than in the sameperiod of 1998 (with all reporting agencies showing an increase,although detailed figures depend on who is doing the counting). TheNEB also expects coal-bed methane to come into production in Canadaover the next 25 years. By 2025, work under way by a variety ofco-operative industry and government research and developmentprograms are expected to yield up to 10 Bcf/d in production fromcoal beds that carpet much of Alberta, eastern British Columbia andsouthern Saskatchewan. Current projections of the Canadianendowment of economically recoverable coal-bed methane range from75 Tcf to 261 Tcf, with the NEB occupying the most cautious end ofthe spectrum. The NEB expects Canadian supply costs forgas-counting all expenses for exploration, development, production,operations, taxes, royalties and producer returns-to climb but staycompetitive. Canadian supply costs are projected to rise only bygradual stages into the range of US$2-$2.25/Mcf until and unlessthe resource base and technology are strained late in the 25-yearforecast period. The NEB projections show export prices rising butnot at the spectacular rate of the past 18 months, when marketanticipation of new pipeline capacity cut differentials betweenCanadian and U.S. prices from a peak of US$2/Mcf into a range of25-50 cents. By 2025, prices at the international boundary areexpected to reach US$2.50-$3.35 at the Monchy crossing forChicago-bound pipelines and US$3.60-$4.40 at the Niagara benchmarkfor U.S. Northeast deliveries.

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