Canada’s natural gas export capacity is “not likely” to be an issue in U.S. storage levels despite record levels of drilling, and it will have only a “minimal effect” on overall supply and demand, according to Monday’s Stat of the Week by an analyst with Raymond James. According to the analyst, Canada has contributed less than 1 Bcf/d in the first half of 2001 to U.S. supplies, and even with the “significant” Ladyfern discovery in British Columbia, the figure is only expect to rise another 0.5 Bcf/d in the second half of the year.

In fact, the analyst noted that “we continue to believe that the rapid build up in U.S. storage volumes is related more to demand-side issues, such as declining industrial demand and fuel switching, rather than growth in North American supply.” The research note follows news by the American Gas Association last week, which reported a 3 Bcf net injection into U.S. storage facilities two weeks ago, an unprecedentedly low figure (see Daily GPI, Aug. 17).

A survey of the reported quarterly data production volumes of Canada’s top 13 natural gas producers found that Canadian production rose 11% in the first quarter and another 9% in the second quarter, adding about 2 Bcf/d of new production. A survey of the intra-Alberta pipeline system confirmed the analyst’s results for the first quarter.

In the second quarter of 2001, Canadian storage filled at a rate of 2.3 Bcf/d compared with 1.3 Bcf/d in the same period a year ago. U.S. imports showed an increase of 0.9 Bcf/d between January and April 2001 compared to a year ago and “very likely held flat” in the second quarter at about 1 Bcf/d. “The only wildcard here is Canadian consumption”…but “if we conservatively assume that domestic consumption of natural gas in Canada remained approximately flat, then we come to a maximum overall increase in Canadian production of approximately 2 Bcf/d.”

Production at the hot Ladyfern prospect, a discovery made a year ago (see Daily GPI, Sept. 12, 2000) could boost imports into the United States, noted the report, adding “another 250-300 MMcf/d of incremental import supply” through the rest of this year.

However, “evidence shows that record levels of drilling in Canada have generated a small supply response of approximately 2 Bcf/d. However, even after adjusting for the incremental supply from the Ladyfern discovery, Canadian imports, excluding Sable Island, were probably only up approximately 0.8 Bcf/d during the second quarter and should show a 1.0-1.1 Bcf/d year-over-year increase through the remainder of 2001.”

Based on evidence from several of Canada’s major export pipelines, the Raymond James analysts noted “there is approximately 2 Bcf/d of unused capacity in the system right now. While the Westcoast and Foothills pipelines are probably running full right now, additional compression and underutilized space on both the TransCanada and Alliance Pipelines could provide another 1.7 Bcf/d of export capability, with a 300 MMcf/d expansion of the PGT line, bringing the total to approximately 2 Bcf/d by mid-2002.”

The report noted that it is “highly unlikely that Canadian production can continue to grow at a rapid enough pace to fill an additional 2 Bcf/d of export capacity…and “in fact, depending on the ultimate size of the Ladyfern reservoir, it may be difficult to replace the production once the field begins its natural decline, causing available export capacity to actually increase.”

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