The United States may be able to “considerably” increase its natural gas demand and gas exports from North American offer compelling market opportunities, but the Marcellus Shale will dictate the direction in any scenario, according to the Canadian Energy Research Institute (CERI).

In collaboration with ICF International, whatIf? Technologies Inc. and Scenarios to Strategy Inc. (S2S), CERI developed four plausible views of the future on the influence of high/low natural gas usage for power generation and high/low liquefied natural gas (LNG) export scenarios on the North American natural gas market.

“North American Natural Gas Pathways” is the result of the collaboration, depicting how “critical uncertainties” of LNG exports and gas-fired power generation may impact future gas growth.

CERI assigned each narrative a name: “Power Wave,” high power generation/low LNG exports; “Full Speed Ahead,” high power generation/high LNG exports; “Nowhere Fast,” low power generation/low LNG exports; and “LNG Tsunami,” low power generation/high LNG exports.

Much has already has been written about how LNG exports may or may not benefit North America (see related story; Daily GPI, Aug. 21). Some of CERI’s report echoes findings of other experts.

For instance, the narratives based on substantial LNG exports and a healthy economic recovery (LNG Tsunami, Full Speed Ahead), found substantial short-term increases in Henry Hub gas prices to support upstream production. However, these gas export narratives don’t support Western Canada’s upstream industry, except for British Columbia, said researchers. In both of these scenarios, despite British Columbia’s advantaged ports and onshore gas reserves, Canada becomes a net U.S. gas importer.

In the remaining two narratives (Power Wave, Nowhere Fast), end-users increase gas demand by expanding gas-fired power generation, primarily in the United States, said researchers. Under these narratives, Canada remains a net gas exporter to Lower 48 states.

“In all of these narratives, the Marcellus [shale] production would enter the New England and New York markets and compete against the interstate pipelines emanating from the Gulf of Mexico and the import pipelines from Canada,” researchers found. “The level of production from the Marcellus entering this market will compete directly against Canadian import volumes.”

Canada gas imports also would be influenced by “Marcellus gas entering the Chicago market directly and by the redirection of Rockies gas in Wyoming toward the Ruby Pipeline and its connection to California.”

California now receives about 2 Bcf/d of Canada gas, the report said. “In three of the narratives, the production levels from the Marcellus are sufficient to demonstrate this situation with the result being a pushback of Canadian imported gas.

“In the fourth narrative, Nowhere Fast, Canadian gas can continue to enter the Chicago and New England markets, however, at reduced volumes from current day.”

The United States, unlike Canada, would be able to generate more gas demand easily, according to researchers. The United States generate about 42% of its power by coal, with hydropower in 2011 generating only about 7.9%, CERI said. “As a result, there is more room for natural gas penetration in power generation.”

Canada, meanwhile, has less potential to build gas demand growth. In 2010, 59% of the country’s power generation was from hydropower, with only 14% generated from coal. Thus, LNG exports from British Columbia “had a more significant contribution on Canada’s demand disposition than did power use.”

With increasing U.S. demand and ever-more gas production coming online, Canada’s role as a gas exporter to domestic markets diminishes over time, researchers found.

“The exception is the ‘Nowhere Fast’ narrative, where a lack of LNG exports and economic growth allows gas to continue flowing into U.S. markets even though prices are not lucrative.”

In the highest production narrative, “Full Speed Ahead,” indications are that domestic gas output will increase by 60% over the life of the forecast while Canada output rises by only 30%, and most of that is a direct result of LNG exports from British Columbia.

The lowest production narrative, “Nowhere Fast,” sees total U.S. output declining slightly, with production from the Marcellus and other U.S. unconventionals “still required to counter the decline in production from existing wells, both conventional and unconventional.”