Producers in Canada could be forgiven if they feel like they're in a boxing match with their U.S. counterparts. Marcellus Shale production and the coming Ruby Pipeline offer a one-two punch that will knock Canadian gas out of the Lower 48 ring, according to Bentek Energy LLC.
"Marcellus Shale volumes are now pushing Canadian imports out of the Northeast, and this trend will accelerate as new pipeline expansions drive additional U.S. gas supplies into Ontario," said Bentek Managing Director Rusty Braziel. "In the West, the new Ruby and Bison pipelines will increase deliverability of the more economical Rockies gas to western markets and the Midwest, respectively, while displacing gas back into Canada.
"Because of this, we anticipate gas imports to the U.S. to drop 2 Bcf/d or 30% by 2015."
The findings are part of Bentek's latest Market Alert, titled "The Big Squeeze: Ruby, Canada and Marcellus," which predicts curtailments of Canadian production because of pushback from U.S. supplies.
According to Bentek, in the next few weeks Western Canadian supply currently bound for Midwest markets on Northern Border Pipeline will face direct competition from Rockies supplies flowing east on Bison. "By next summer, Rockies producers will have an additional 1.5 Bcf/d of westbound capacity on El Paso's Ruby Pipeline bound for Malin, OR. These supplies will compete head-to-head with Canadian supply for PG&E's [Pacific Gas & Electric Co.] citygate, the premium market in the West," the firm said.
In the Northeast, Marcellus production is redirecting Canadian imports out of the region and displacing them toward the Midwest and West, Bentek said. "Planned pipeline expansions will unleash more supply from shale and other unconventional formations in the coming years. There is nearly 14 Bcf/d of planned pipeline capacity designed to support the growth of the Marcellus and other supply from unconventional plays in the Southeast/Gulf and the Rockies," the report said.
From this year to 2015 Canadian production will decline by 1 Bcf/d, despite growth in the Montney and Horn River plays in British Columbia, Braziel predicted. "The bright spot on the Canadian supply-demand horizon is a significant increase in Canadian natural gas demand, which will partially help offset the otherwise bearish outlook for Canadian gas prices," he said.
Oilsands development in Alberta and increased demand from power generators in Ontario will soak up some Canadian gas. "The 2 Bcf/d displacement of U.S.-Canadian imports is double the 1 Bcf/d projected decline in Canadian production. The balance of displaced imports will be offset by increases in Canadian demand from the oilsands in western Canada and from power generation growth in Ontario," the report said.
"This 'Big Squeeze' -- the broad displacement effect on Canadian imports -- will have widespread impacts on U.S. and Canadian flows, basis relationships, and ultimately on the Canadian supply and demand balance. Shrinking price spreads for transport to the U.S. markets will lead to drilling cutbacks in Canadian production basins, especially in the earlier part of the forecast period, before oilsands demand ramps up."
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