Canadian natural gas exports to the United States are slipping, in a trend large and long enough to start speculation that a long-forecast reduction has begun in Alberta’s role as an international supplier, due to rising domestic industrial consumption.
Pipeline exports dropped by 7.5% in the first seven months of the 2005-06 contract year to 2.065 Tcf from 2.233 Tcf for the comparable period of Nov. 1 through May 31 in 2004-05, according to trade records kept by the National Energy Board. The NEB reports only numbers and makes no immediate attempts to describe or explain trends.
But in a summer research note, FirstEnergy Capital Corp. reported receiving numerous queries from clients about a “very apparent” increase in demand inside Alberta, source of about four-fifths of Canadian gas production. “Is this shift for real? Is it significant? More importantly, is it lasting? Our answer to all three questions is a definite yes,” FirstEnergy concluded after reviewing Canadian pipeline data.
Alberta domestic gas demand has increased by between 300 and 500 MMcf/d compared to mid-2005, the Calgary investment house calculated. “We believe this gain is largely for real and not some temporary event or data anomaly.”
The increased domestic demand is attributed to power generation and especially to rising oilsands production. The oilsands rely heavily on gas consuming processes ranging from heat injections into bitumen deposits to oil-upgrader manufacturing of synthetic light oil from the industry’s initial output of molasses-like heavy crude. Oilsands gas use has increased by about 225 MMcf/d over the past year and possibly by as much as 300 MMcf/d, FirstEnergy estimated.
That increases project 2006 oilsands gas consumption into the range of one Bcf/d, and the figure is forecast to rise by another 10% next year even though major oilsands projects now under construction will only begin production. Alberta gas consumption by power plants is believed to have increased by as much as 100 MMcf/d so far this year, thanks not least to surging economic growth driven by expanding oilsands operations.
Developing growth in oilsands gas demand was also highlighted in a summer report by Ziff Energy Group, which echoed projections by TransCanada PipeLines, the Alberta Energy and Utilities Board and the NEB. The gas demand forecasts in turn reflect industry consensus forecasts of oilsands expansion by the Canadian Association of Petroleum Producers and specialized agencies such as the Athabasca Regional Issues Working Group and the Alberta Chamber of Resources. Over the next 10 years oilsands production is forecast to triple to three million bbl/d or more. Gas use by the mammoth oil plants is expected to as much as quadruple to 2.4 Bcf/d by 2015.
Among U.S. destinations for Canadian gas the sharpest contraction is in the U.S. Pacific Northwest, where the NEB reports deliveries were down by 22% to 216.2 Bcf over the seven months ended May 31. Pipeline exports to the U.S. Midwest were down by 6.5% to 881.3 Bcf over the seven-month period. Canadian shipments to California dropped 6% to 261.4 Bcf. Export deliveries to the U.S. Northeast were down by 4% to 697 Bcf.
The supply trend has been masked in most official economic aggregate trade accounts by high prices during the early part of the gas contract year, when markets were still feeling effects of 2005 hurricane damage to Gulf of Mexico production. Canadian gas export revenues for the seven months ended May 31 were up by 22% to $17.8 billion, thanks to a 32% jump in average prices to US$8.52/MMBtu at the international border.
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