Market Snapshot: Natural Gas Deliverability Expected To Outpace Demand Growth from 2015-2017

Release date: 2015-06-19

Today the National Energy Board released its Short-term Canadian Natural Gas Deliverability 2015-2017 - Energy Market Assessment. This report includes three projections of annual natural gas deliverability in Canada to the end of 2017.

The North American natural gas market will remain oversupplied from 2015 to 2017, as deliverability is expected to outpace demand growth. The competitiveness of Canadian natural gas will continue to be challenged by low cost supplies of shale gas from the U.S. Oversupply and lower prices have reduced revenues, constrained cash flows, and significantly reduced gas-targeted drilling by producers in Canada. While decreased capital expenditures are expected to reduce total Canadian deliverability, the market will see an increase in average deliverability per-well due to a focus of drilling efforts on the most economic and productive prospects.

Figure Sources and Description

Sources: NEB, GLJ Publications

Description: This chart depicts historical and projected Canadian natural gas deliverability for the three price cases included in the Short-term Canadian Natural Gas Deliverability 2015-2017 - Energy Market Assessment. In each of the three projections, the 2015 level of Canadian natural gas deliverability falls relative to 2014. By 2017, Canadian natural gas deliverability in the Mid-Range Price Case is projected to average 14.7 Bcf/d, remaining essentially flat from the 2014 level of deliverability. The 2017 natural gas deliverability in the Higher Price Case and the Lower Price Case are expected to average 15.6 Bcf/d and 13.9 Bcf/d, respectively.

The chart also depicts the historical and projected Henry Hub price of natural gas (US$/MMBTU). In 2014, the Henry Hub price of natural gas averaged US$4.35/MMBTU. By 2017, the Henry Hub price of natural gas is projected to average US$3.55/MMBtu in the Mid-Range price Case, US$3.70/MMBtu in the Higher Price Case and US$3.10/MMBtu in the Lower Price Case.

In the Mid-Range Price Case, the average Henry Hub price would fall from US$4.35/MMBtu in 2014 to US$2.90/MMBtu in 2015, before gradually increasing to US$3.55/MMBtu in 2017. Canadian natural gas deliverability in the Mid-Range Price Case remains relatively flat averaging 416 106m³/d (14.7 Bcf/d) in 2014 to an average of 417 106m³/d (14.7 Bcf/d) in 2017.

Western Canada remains the primary source of natural gas deliverability in Canada, contributing 98% of annual production. In the Mid-Range Price Case, tight gas activity as a portion of total drilling activity is expected to increase and will be dominated by drilling in the Montney (544 of the 901 tight gas wells drilled in 2017 are within the Montney). The Duvernay Shale play continues to see most Canadian shale gas activity with 40 wells drilled in 2017, compared to five wells in the Horn River Basin. In Eastern Canada, production from the offshore Nova Scotia Sable Island project continues to decline, while production from the Deep Panuke project is temporarily shut in due to water incursion issues, and is expected to begin seasonal production by October 2015.

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