U.S. gas drillers battered by the lowest prices in 17 years have found another release valve for their output: Canada.
Over yesteryear 5 years, the shale boom that unlocked vast supplies of natural gas across North America has tripled pipeline shipments in the U.S. to Mexico, and spurred the first seaborne exports from the lower 48 states. Now, pipeline companies led by Spectra Energy Corp., TransCanada Corp. and Energy Transfer Partners LP are preparing to more than double the amount flow into Canada by 2027, based on the Canadian Energy Research Institute.
It’s another obstacle for Canadian producers.
The push begins the coming year, with plans to open or expand a minimum of three major pipelines and reverse the flow northward on a fourth. Meanwhile, TransCanada might be going one step further, engaging in acquisition talks with Columbia Pipeline Group Inc., a company having a direct route in to the U.S.’s prolific Marcellus shale play. The efforts be gas stockpiles have reached historic highs, prices have fallen almost 40 percent because the end of 2011 and the fuel has built itself as the Bloomberg Commodity Index’s worst performer. All of that has spurred a desperate drive by drillers to grow their markets.
“There’s a lot supply growth in the eastern U.S. that producers are trying to find all outlets to obtain the gas to promote,” Martin King, an analyst at FirstEnergy Capital Corp. in Calgary, said inside a phone interview. “It’s another obstacle for Canadian producers.”
Home-grown Canadian drillers such as Calgary-based Birchcliff Energy Ltd. and Encana Corp., are already feeling the heat. Nine years ago, supplies piped from Canada met 16 percent of U.S. demand for natural gas. By 2014, as U.S. output rose to a record for any fourth straight year, Canadian supplies had slipped under 10 per cent.
Some Canadian producers will hurt a lot more than others. People who keep their costs down then sell to markets that don’t vie with supplies in the eastern U.S. will remain competitive, said Jeff Tonken, Birchcliff’s chief executive officer.
Meanwhile Encana, one of Canada’s largest gas producers, has said it was cutting spending this season by 55 percent amid the slide in oil and gas prices. The company is also reducing its workforce another 20 percent, which means that Encana will have a lot more than halved its quantity of employees and contractors since 2013.
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Montney, Marcellus
The production gap between the two countries is significant.
Last year, Canada produced about 12 billion cubic feet a day of gas, in contrast to almost 80 billion from the states. Simultaneously, drillers working the Montney shale basin in Western Canada face a drawback using the northern fringe of the Marcellus basin in Pennsylvania sitting about 12 times closer to Toronto.
The region since the Marcellus is among the few places where it’s still profitable to purchase gas lines. It’ll yield 17.4 billion cubic feet each day this month, 2 billion cubic feet a lot more than the U.S. Energy Information Administration had previously forecast. As the number of drilling rigs targeting gas has plunged to zero in fields from North Dakota to Oklahoma, you may still find 40 running in the Marcellus and its neighboring Utica shale. Gas futures for April delivery rose 3.8 cents to US$1.826 per million British thermal units at 8:07 a.m. Friday around the Ny Mercantile Exchange.
That’s where proposals like Spectra’s Nexus and Atlantic Bridge projects come in. The pipelines, scheduled to begin up by the end of the coming year, would carry about 1.6 billion cubic feet of gas, or enough to heat 22,000 homes for any year, towards the northern U.S. and Canada. To achieve this, the company is seeking to reverse the Maritimes & Northeast line, which sends gas from Canada’s eastern waters south of the border.
At the same time, Energy Transfer’s Rover project would provide the fuel to the northern Midwest, where it’ll interconnect with a line stretching into Ontario.
Reversing Lines
Meanwhile, TransCanada, the company which was stymied in the attempt to build the Keystone XL oil pipeline, is considering reversing its Iroquois gas line, which has been sending western Canadian supplies towards the U.S. for more than 2 decades. The move allows TransCanada to enhance volumes on the pipeline by delivering cheap Marcellus gas towards the eastern provinces.
On Thursday, TransCanada confirmed it’s in negotiations about a “potential transaction” with another company, but wouldn’t identify it. People familiar with the matter, who asked not to be identified as it isn’t public, said the company was Columbia Pipeline, and that the discussions are now in a standstill.
“There’s no question that more supply is striking the market,” said Samir Kayande, an analyst at RS Energy Group in Calgary. “No matter where it comes down from, it’s going to lower prices for everyone.”
Bloomberg News
