Cold snaps, an accelerating switch in drilling targets to chase high oil prices and strong demand by Alberta thermal bitumen extraction projects are deflating Canada's share in the North American natural gas surplus.
January withdrawals from Canadian gas storage jumped this year by a national total of 12% from the anemic levels of a warmer first month of 2010, calculates FirstEnergy Capital Corp., a Calgary-based investment house.
The draw on gas inventories during the first month of 2011 was up by an estimated 25.6 Bcf, or 34%, in Western Canada, where the population is shivering through repeated invasions by cold fronts while growing oilsands production approaches 1.5 million b/d. Since peaking near capacity at about 775 Bcf last October, total Canadian gas in storage has dropped by 40% to 455 Bcf.
Northern Alberta bitumen operations use an average of about 1 Mcf of gas per barrel of oil output. Open-pit mines operate at the low end of the energy consumption scale, but faster growing in-situ underground extraction with steam injections is burning up to twice as much fuel. In the current trading range of US$85-95/bbl, oil prices are 50-100% higher than estimated in-situ bitumen production costs for a wide range of projects.
The 50% drop in Canadian gas into the range of $3.50-4.00/MMBtu over the past two years has reduced a major oil sands production cost, spurring the resurrection of developments that were deferred during the 2008-2009 global economic slump.
"We have been impressed by Canadian natural gas demand over the past few months, with November, December and January all outperforming year-ago levels," FirstEnergy said in a research note. "We have been especially impressed by Alberta natural gas demand this heating season, with January up by around 675 MMcf/d, or 17%" following increases of 18.6% in November and 5.6% in December.
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