The continental market for natural gas was warned by the National Energy Board (NEB) to brace for an increasingly tight squeeze on the Canadian one-fourth of North American supplies — including the exports that satisfy 15% of demand in the United States.

In a new forecast looking ahead to 2025, the NEB describes prospects for Canadian gas as ranging from challenging at best to outright unsustainable at worst. Under no circumstances is productivity expected to repeat the doubling achieved in the first 15 years of the deregulation and free trade era after 1985.

At most, the board calculates that a 12% production increase in total Canadian output to 19.3 Bcf/d can be achieved by 2015, followed by a gradual 13% retreat back to about 16.7 Bcf in 2025. But a brief 6% gain to a peak of 18 Bcf daily in 2010, followed by a 34% decline to 12 Bcf/d in 2025, is rated as just as possible.

Saying the outlook is plagued with unanswerable questions about the resource endowment and economic behavior, the NEB made a point of refraining from laying out a most-likely or base-case projection.

Instead, the board devised two scenarios. In “supply-push” the current energy status quo prevails on both the supply and consumption side of the markets. The industry concentrates on the easiest drilling and market targets for quick returns. On the other hand, there is a “techno-vert” scenario. It features heightened focus on long-range technological advances in production and conservation, spurred to a large degree by environmental regulation and “green” consciousness.

Supply-push, for instance, spells rapid expansion of oil sands complexes to replace declining conventional wells – to the point where the heat- and electricity-intensive crude extraction plants eat up most of the new gas supplies expected from the Canadian Arctic by 2008-10. In techno-vert, the oil-sands development pace slows down, consumption becomes more efficient and gas producers concentrate heavily on refining techniques to extend the life of old fields and develop new sources.

“The supply-push scenario seems to be unsustainable for the natural-gas industry over the 25-year projection period,” said the NEB’s 98-page report, titled “Canada’s Energy Future: Scenarios for Supply and Demand to 2025.”

“Without rapid improvements in technology to increase supply or reduce demand, increasingly large adjustments will be required in the marketplace.”

As the destination for 60% of Canadian production, the U.S. is liable to feel the pinch hard. “The supply-push scenario will likely result in significant changes to historical export patterns,” the NEB predicts.

“For example, with declining production over time, Alberta natural gas may no longer reach the U.S. Northeast, requiring this market to increase imports from Atlantic Canada instead. Other U.S. markets, such as California, may reduce their dependency on Canadian imports, relying instead on growing supply from the U.S. Rockies, Alaska or imported LNG.”

In both NEB scenarios, U.S. gas users face the prospect of competing with Canadian counterparts to secure Canadian supplies and consumers on both sides of the border can count on prices to stay volatile and high by historical standards. The board expects Canadian gas demand to rise steadily, from about seven Bcf /d to more than 10 Bcf.

The NEB forecasts Canadian producers will succeed on their newest development fronts by completing an Arctic pipeline for up to 1.9 Bcf daily, tapping coalbed methane at a rate of up to 4 Bcf/d, making enough discoveries offshore of the East Coast to add 1.5 Bcf/d to the Sable Offshore Energy Project’s 570 MMcf/d, and even finding and producing gas in currently off-limits areas offshore of British Columbia.

But the new additions to productivity will be offset. The problem is forecast to be erosion in the Canadian industry’s mainstay of supplies since its birth. The NEB’s latest calculations confirm that it suspects Alberta production — or four-fifths of the national total — has entered a long period of gradual but irreversible decline. In both scenarios devised by the board, Alberta output peaked in 2000 at 13.8 Bcf/d.

At worst, in the supply-push scramble of continuing to rely on high numbers of shallow wells, Alberta production capacity is forecast to dwindle to 12 Bcf/d in 2010 then drop at an accelerating rate to 4.5 Bcf/d in 2025. The province’s output also tapers off in the techno-vert scenario of technical creativity, but at a far slower rate, finishing the period at a much stronger 7.5 Bcf/d in 2025.

The NEB warns that no matter which scenario turns out to be closest to the truth, the continental gas trade must adapt to a new reality of Canadian supplies being limited. “In techno-vert, end-users will also face market adjustments, although to a lesser degree than supply-push, as technology enables extended production from existing sources and more rapid development of others. However, adjustments are still necessary in response to the need for new or alternate transportation, higher natural gas and transport costs, and changes to supply reliability.”

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