NEB sees flat Canadian gas output through 2017

OREANDA-NEWS. Canadian gas production is expected to remain flat through 2017 under a mid-range price scenario, Canadian regulator National Energy Board (NEB) said.

"Lower prices, ample supply and increased competition in key markets will challenge the competitiveness of Canadian natural gas and gas exports," said the report, titled "Short-term Canadian Natural Gas Deliverability: 2015-2017."

In the mid-price scenario, Canadian gas production remains virtually unchanged from 416mn m?/d (14.7 Bcf/d) in 2014 to 417mn m?/d in 2017. Average Henry Hub prices are projected to fall to \\$3.55mmBtu in 2017, from \\$4.35/mmBtu in 2014.

Canadian production in 2014 was up by 4.8pc from 2013 but below the country's peak of 17 Bcf/d in 2005. Production increased in 2014 because of the North American gas storage deficit after the cold 2013-14 winter, higher-than-expected well productivity and additional production in the western Canadian sedimentary basin to prove reserves for potential LNG exports.

The main reasons that production is expected to be flat through 2017 is that storage levels returned to five-year averages in April 2015 and falling oil prices since mid-2014 have reduced capital spending and made it harder for mid-sized companies to get debt financing.

In addition, cheap gas from the prolific Marcellus and Utica shale formations in the US is squeezing more expensive western Canadian gas out of its historical markets in the US northeast and midcontinent. Marcellus and Utica gas is also increasingly being exported to central Canada through reverse flows on pipelines.

Also, declining revenues from a glut of natural gas liquids (NGLs) in Canada and the US have reduced the amount of drilling for liquids-rich natural gas.

Potential final investment decisions for planned Canadian LNG export projects this year or next could increase gas demand and production.

Western Canada produces 98pc of the country's gas, and in the mid-range scenario the gas price in the western Canadian province of Alberta is expected to drop from an average of \\$3.30/mmBtu in 2014 to \\$2.74/mmBtu in 2017, the NEB said.

Canadian gas-targeted wells will decline significantly to 736 this year, a 62pc drop from 2014, under the mid-range scenario. The number of gas-targeted wells would increase to 1,275 in 2016 and to 1,485 in 2017.

In the low-price scenario, Henry Hub prices dip to \\$3.10/mmBtu or less in 2017 and production falls to 13.9 Bcf/d.

In the high-price case, Henry Hub prices would rise to \\$3.70/mmBtu in 2017 production increases to 15.6 Bcf/d.