Canadian natural gas exports are poised for a steady decline to zero over the next quarter-century if current market conditions persist, according to a new long-range forecast by the National Energy Board (NEB).
In a “continuing trends” scenario — one of three cases deemed to be plausible by the NEB after canvassing the industry — the projections show exports will be steadily eroded by a combination of deteriorating supplies and rising Canadian demand.
“By 2028 Canadian domestic gas consumption is estimated to be equivalent to Canadian domestic gas production and Canada’s position as a net gas exporter would potentially come to an end,” the two-volume technical report predicts. Not all trade in gas between Canada and the United States is forecast to end, but the traffic is expected to become local, intermittent and two-way, with the direction of flows determined by passing temporary shifts in supply and demand.
“Physical exports and imports of natural gas between the U.S. and Canada would likely continue on a region-specific and seasonal basis in response to varying market conditions,” the NEB says in its continuing trends scenario. “Liquefied gas imports into Canada and the U.S. would supplement production in both countries to maintain balanced market conditions and enable the relatively stable pricing conditions incorporated in the scenario.”
The continuing trends scenario foresees oil prices settling back into the range of US$50/bbl and gas holding at an annual average of US$5.00-6.00/MMBtu by regaining an energy equivalence value where one gas MMBtu fetches one-sixth as much as one oil barrel.
The decline in the Canada-U.S. gas trade has either already set in or will become apparent soon, the NEB adds in “reference case” 10-year projections of current market conditions. As of about 2015, the board projections show Canadian export pipeline deliveries dropping into a range of 5-6 Bcf/d, down by as much as 45% from recent peaks exceeding 9 Bcf/d.
Conventional western Canadian production, chiefly from Alberta, will decline even though drilling will recover from current lows to average about 18,000 wells a year as of 2009, the NEB predicts. Board surveys of the industry continue to show a persistent trend towards reduced well productivity due to natural aging and depletion of western reserves.
Over the next 10 years, conventional western output is expected to slip by as much as one-third into a range of 11 Bcf/d. Coalbed methane (CBM) production is projected only to make up for part of the decline by more than doubling to 1.4 Bcf/d in 2015. Other “unconventional” sources — tight geological formations and CBM-like operations in geological shale formations — are expected to make modest new contributions to output.
Over the next 10 years the NEB expects Canadian East Coast offshore gas production to recover and stabilize at about 430 MMcf/d, including the proposed Deep Panuke project currently seeking regulatory approval.
By 2015 the NEB expects three Canadian LNG import terminals to be up and running, to receive supplies averaging 1.4 Bcf/d. The first terminal is currently under construction in New Brunswick and two eastern Quebec projects are largely through the regulatory process and awaiting final decisions on their commercial viability by their sponsors. All Canadian LNG schemes are at least initially aimed chiefly at supplying nearby U.S. markets.
In the NEB’s reference case and long-range continuing trends projections alike, Alberta’s oilsands continue to play a major role in reducing gas supplies available for exports by generating the biggest increases in domestic Canadian demand.
Technical improvements now on the horizon will potentially reduce “gas intensity” or consumption by oilsands thermal processes marginally to an average 0.59 Mcf per barrel of production as of 2015 from a current 0.67 Mcf per barrel, the NEB estimates. But total oilsands production is still forecast nearly to triple to 2.8 million barrels daily despite project cost increases. Total oilsands gas consumption is expected to climb to 1.8 Bcf/d in 2015 from a current 650 MMcf/d.
Only in an unruly scenario that the NEB calls “fortified islands” does Canadian gas production grow over the next quarter-century. In this outlook “security is at the forefront” of energy policy everywhere. “Geopolitical unrest, a lack of international co-operation and trust, and protectionist government policies characterize this scenario,” the board says.
Oil prices stay inflated at US$90 a barrel or more and gas averages US$12/MMBtu or higher in the “islands” scenario. LNG trade is curtailed. Canadian producers ramp up drilling to an average of 24,000 wells per year to increase conventional production into a range of 16.5-17.1 Bcf/d. Canadian CBM output jumps to 3.5 Bcf/d as of 2020 and shale gas production hits 1.9 Bcf/d. Arctic gas starts to reach markets in 2015 and climbs to 2.4 Bcf/d by 2025.
The NEB makes no attempt to assess the probability of its scenarios coming true, including a “triple e” case driven by polar opposite conditions to the unruly “islands” outcome.
In triple e — short for a green visionary’s ideal world where balanced economic, environmental and energy objectives are achieved by international co-operation — oil and gas prices fall. Oilsands development tapers off. Canadian gas drilling drops to 8,000 wells a year, and CBM and other unconventional activity recedes. Canadian gas production falls by one-third as of 2015 and shrinks by 80% as of 2030, but no one goes short because global LNG trade proliferates.
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