A forecast migration to the north and west in the sources of Canadian natural gas supplies has taken a stride ahead, thanks to a favorable pipeline regulatory ruling. TransCanada Corp. obtained approval from the National Energy Board (NEB) for a C$324 million (U.S. dollar at par) addition to its Nova gas transportation grid in northern British Columbia and Alberta.

Called the Northwest Mainline Expansion, the construction program will raise Nova capacity by about 485 MMcf/d, or 63%, to 1.3 Bcf/d on a supply development front variously known as the Upper Peace River or the industry’s “near frontier” (as opposed to the far one in the Arctic on the Mackenzie Delta). The additions will establish an enlarged market connection for Canada’s richest known shale gas deposit, the remote Horn River Basin at the top of British Columbia (BC) between Fort Nelson at mile 300 on the Alaska Highway and the province’s boundary with the Yukon and Northwest Territories.

Current forecasts peg the volume of “marketable” gas — the amount likely to be produced with current technology — in the Upper Peace region at 131 Tcf, or a conservative 22% of total deposits of 583 Tcf. In the long term, forecasts show BC pulling ahead of Alberta as Canada’s top gas-producing jurisdiction by 2019, with BC production going to seven Bcf/d by 2020.

Although Canadian producers are currently freezing or cutting gas drilling budgets due to depressed prices across North America, the country’s top gas transporter continues to predict northern shale development will be needed to replace depleting conventional wells after the current glut is burned off.

In its Northwest Mainline construction application, TransCanada-Nova forecast seven-fold growth in Upper Peace gas production to 3.5 Bcf/d by 2025 from the region’s current 500 MMcf/d. The company emphasized that the pipeline project, and its supporting market outlook, are driven by transportation service requests from shippers developing supplies in the region. The projections show that by 2025, 97% of the greatly increased Upper Peace output will be northern shale gas. Only 8% of production in the area comes from the new source, where activity continues to be pilot projects aimed at adapting horizontal drilling and hydraulic fracturing to northern conditions.

TransCanada-Nova also predicts that North American gas demand will grow, with power generation driving most of an anticipated increase in consumption across the continent to 94 Bcf/d as of 2025 from the current 80 Bcf/d.

Not even the most bullish Canadian gas market forecasters are predicting when prices will take a healthy turn for the better. But veteran analysts who take a long view, such as Calgarian Peter Tertzakian, chief energy economist at ARC Financial Corp., are seeing early signs of at least prerequisites for a recovery.

Developments highlighted on Canadian gas market bulls’ charts include a 2012-to-date drop in U.S. production to 63 Bcf/d from 65 Bcf/d in December, announcements of well shut-ins and budget cuts by top suppliers such as Encana Corp. and Chesapeake Energy Corp., and a continuing switch in industry-majority drilling targets to oil and liquids-rich gas. The Canadian consensus on the long-range gas outlook shows up in the “reference case” of most likely evolution projected in periodic 25-year market forecasts by the NEB, which canvasses the industry to generate the reports.

The latest edition, released last November, predicted that BC will eclipse Alberta as Canada’s top gas-producing jurisdiction by 2019 (see NGI, Nov. 28, 2011). As of 2020, accelerating northern shale development is expected to double current BC production to seven Bcf/d. In Alberta, where the geology is more oil- and liquids-prone, gas output is forecast to tumble by 34% to 6 Bcf/d in 2020 from the current 9.2 Bcf/d. By 2035 the NEB outlook sees BC producing 10.2 Bcf/d while Alberta stays down in the 6 Bcf/d area.

In its Northwest Mainline Expansion decision, the NEB described the TransCanada-Nova supply growth forecast for the Upper Peace region as “reasonable due to its incorporation of widely used methodologies and reasonable assumptions.” The pipeline additions are also “adequately supported by contractual commitments,” the board said.

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