Deteriorating Canadian natural gas supplies will do their gloomy bit toward drying up the North American gas glut for at least another year, a member of the National Energy Board (NEB) predicted Wednesday.

NEB projections show that after falling by 17% since peaking at 16.5 Bcf/d in 2005 into the current 14 Bcf/d range, Canadian output will continue dwindling due to a prolonged 60% drop in drilling, Lyne Mercier said. The supply erosion will continue even if bullish forecasts of a price recovery come true, she told an annual Calgary conference of the Canadian Society for Unconventional Gas.

“We expect that the lack of drilling activity in western Canada in 2009, which is expected to continue into 2010, will cause production to drop in all [price forecast] cases until late 2010 at the earliest,” Mercier said. “Much of this production decline is momentum, with current low activity being felt down the line.” The NEB expects the supply erosion to continue even if prices rebound, saying a recovery will take time to rekindle drilling programs and accelerate the annual western Canadian well count much beyond the 18-year low of about 8,000 currently forecast for 2009 and 2010 by industry field contractor associations.

“Of note is that only in the high case [gas prices at US$7/MMBtu in 2011] do we expect production even to flatten in the near term,” Mercier said. “And our low case [$4 in 2011] has Canadian production falling to just over 12 Bcf/d by the end of 2011. Even the medium case [$5.50 in 2011] sees production falling to just over 13 Bcf/d by the end of 2011.”

The NEB’s expectations take into account projected acceleration of shale gas development in northeastern British Columbia, where Canadian trend setters such as EnCana Corp., Nexen Inc., Devon Canada and TransCanada Corp. have affirmed that they are going ahead on multiple supply and pipeline projects. The fledgling transplant of U.S. technology is rated as too young to make up for the slump in conventional fields. “While drilling activity in tight gas and shale gas steadily increases their shares of Canadian production, it is not enough to offset conventional declines until 2011 and then production is expected to rise only slowly afterwards,” Mercier said.

The Canadian export share of the United States gas market — historically about 15%, but dropping since early 2008 — is liable to fall faster than production. At the same time as Alberta gas consumption by thermal oilsands extraction projects continues to climb, U.S. pipeline development is heading Canadian exports off at the U.S. border, the NEB member observed. She pointed to the record 84 projects that installed more than 4,000 miles of new pipe in the United States last year, plus the growing ability of marketers serving central Canada and the northeastern states to tap into increasing, competitive U.S. supplies.

“The availability of Rockies gas for import into Canada near the Dawn Hub at the southwestern tip of Ontario has important implications for Canadian pipelines that serve the eastern Canadian market,” Mercier said. The Dawn trading center is poised for expansion under an application currently before the NEB.

“From 1.9 Bcf/d to 3.4 Bcf/d flows into the southwestern tip of Ontario, depending on the season.” Most of the deliveries still arrive from western Canada, but U.S. supplies represent “a significant and growing portion.” Some of the U.S.-sourced flows through Dawn are re-exported to northeastern states, but “growing U.S. supplies may be able to displace eastbound western Canadian gas in the future. More implications arise from growth of Marcellus Shale production in the northeastern United States, LNG [liquefied natural gas] imports and potential Utica Shale production in Quebec and New York State,” Mercier said.

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