Market Snapshot: Natural gas plays an important role in Alberta’s oil sands

Release date: 2017-04-19

Alberta’s oil sands operations currently account for more than 25% of Canadian natural gas demand. From 2005 to 2016, natural gas purchased by oil sands projects more than tripled, from 0.73 billion cubic feet per day (Bcf/d) to nearly 2.38 Bcf/d in 2016. In contrast, total Canadian gas demand increased over the same period from 6.17 Bcf/d to an estimated 8.27 Bcf/d.

Natural gas is largely used in the oil sands to generate steam for in situ oil production, and in situ growth has been the main driver behind increased oil sands demand for natural gas.^Footnote 1 The most widely used in situ methods are steam-assisted gravity drainage (SAGD) and cyclic steam stimulation (CSS). Both use steam to heat the reservoir, which decreases the viscosity of the bitumen and allows it to flow to production wells.

Additionally, natural gas is used in oil sands mining to heat water to separate bitumen from sand. It is also used to create steam in upgrading to produce the hydrogen that converts bitumen into synthetic crude oil. Finally, an increasing number of cogeneration facilities in the oil sands use natural gas to produce heat and electricity for both project operations and for sale to the power grid.^Footnote 2

Disruptions to oil sands operations can strongly impact natural gas prices, as was observed during the 2016 wildfires near Fort McMurray. At the peak of the fires, sudden reductions in demand from oil sands producers led to intra-Alberta natural gas prices reaching a record low of 58 cents per gigajoule (GJ) on May 8. Prior to the wildfires, intra-Alberta gas traded at $1.08 per GJ in April, and by July (when oil sands production began to recover), intra-Alberta gas traded at $2.27 per GJ.

Date modified:

2023-11-28