While falling well short of their 72% increase since 1990, Canadian natural gas supplies can still grow over the next two decades, the National Energy Board says in a new effort to map out the industry’s future.

The NEB calculates the nation’s production is capable of rising to 21 Bcf/d by 2025, a 24% increase from the current 17 Bcf/d. Even at its most optimistic, the agency cannot conceive of Canada repeating the near-doubling of its 1990 capacity of 10 Bcf/d.

Taking into account an anticipated 60% growth in domestic demand to 13 Bcf/d, exploiting the Canadian resource endowment to its full potential is expected to keep the gas surplus available for exports to the United States up to about 8 Bcf/d or 85% of current levels which exceed 9 Bcf/d. Whether that full potential is reached is an open question, the NEB adds.

The agency warns that current conditions suggest production growth could turn out to be only 12% or half as great to an early peak capacity of 19 Bcf daily in 2010. A subsequent decline to 15 Bcf/d is held to be conceivable by 2025, cutting the surplus available for export by two-thirds to three Bcf/d.

The projections are outlined in a preliminary draft, circulated for consultation, of an NEB report to be published in May under the title “Canada’s Energy Future: Scenarios for Supply and Demand to 2025.” The forecasts are described as plausible scenarios based on discussions with the industry to date. The document is the latest in a series of outlook reports that the board produces about every five years under a mandate to generate guides for national policy makers and background for its own decisions.

The preliminary report considers two scenarios. In “supply push,” Canada follows a pro-development path akin to President George W. Bush’s proposed National Energy Strategy for the United States. In “techno-vert,” a green Canada opts for an independent course of stronger action on environmental protection and reliance on new technology.

“Implementation of the Kyoto Protocol would be a signpost for this scenario,” the NEB says. The scenarios highlight differences between Canada and the U.S. In Canada, the American emphasis on access to land in its energy strategy is held likely to accomplish little. Except on the West Coast, where a review of a 30-year-old drilling moratorium is under way, there are no significant Canadian counterparts to the off-limits areas believed to be rich in gas on a very large scale in the U.S. western states, Arctic and territorial waters.

In Canada, environmental policy on industrial emissions and technology are rated as key drivers. In the NEB scenarios, the green-Canada approach encourages gas while undermining oil. The Kyoto Protocol, ratified shortly before Christmas by the Liberal government in Ottawa, is forecast to lop about 233,000 barrels per day or more than 5% off Canada’s oil production potential by 2025 if it is implemented strictly. Canadian oil producers rely for growth on sources which are notorious greenhouse-gas emitters, heavy crude and oil sands plants. Kyoto implementation measures remain hotly debated.

In the green-Canada scenario, where environmental promises are translated into action, natural gas production capacity grows steadily. The newest source, coalbed methane, is expected to yield 4 Bcf/d by 2025. Green-Canada policies give the industry motivation to advance extraction, exploration and conservation technology.

In the supply-push or business-as-usual case, the NEB expects the industry to stay with its recent habit of relying on low-cost drilling for small, shallow targets on the easily reached plains of Alberta and Saskatchewan. The board late last year warned that this approach already spells a 4% decline in the western provinces’ productive capacity by the end of 2004.

In the alternate scenario of a green- and technically-minded Canada, the industry adds about 28 Tcf to its supplies by tackling more demanding, but bigger drilling targets along the Rocky Mountains in western Alberta and northern British Columbia. Shallow gas pools and new sources such as coal seams are both exploited more efficiently.

In all cases, the NEB expects a Mackenzie Valley gas pipeline to be laid with an initial capacity of 1 Bcf/d by 2010, then to be expanded to 1.5 Bcf/d as of 2015. The board says it can also conceive of projects in the 2020s on new frontiers, including two developments producing 500 MMcf/d each offshore of Nova Scotia and two similar projects offshore of B.C.

The NEB acknowledges it may be too pessimistic about the productive capacity of western Canada and seeks new industry views. The outlook report questions whether new supply trends are about to emerge in light of strong prices and declared intentions to revive exploration over the past two years. All the scenarios foresee an addition to the Canadian supply scene starting after 2010 and possibly earlier: imports of LNG from overseas, at least on a small scale.

Growing demand, tightening markets and steady upward pressure on prices are expected to lead to development of terminals for LNG tankers in Quebec and New Brunswick. The NEB says it believes the cost of tanker imports will set a cap on gas prices across North America, potentially holding back Canadian frontier projects.

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