U.S. gas drillers battered through the lowest prices in 17 years have found another release valve for their output: Canada.
Over the past 5 years, the shale boom that unlocked vast supplies of gas across The united states has tripled pipeline shipments from the U.S. to Mexico, and spurred the very first seaborne exports from the lower 48 states. Now, pipeline companies led by Spectra Energy Corp., TransCanada Corp. and Energy Transfer Partners LP are gearing up to a lot more than double the flow into Canada by 2027, according to the Canadian Energy Research Institute.
It’s another obstacle for Canadian producers.
The push begins next 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 a step further, engaging in acquisition talks with Columbia Pipeline Group Inc., a business with a direct route in to the U.S.’s prolific Marcellus shale play. The efforts come as gas stockpiles reach historic highs, prices have fallen almost 40 per cent 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 expand their markets.
“There’s so much supply growth in the eastern U.S. that producers are seeking all outlets to obtain the gas to promote,” Martin King, an analyst at FirstEnergy Capital Corp. in Calgary, said in 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. interest in natural gas. By 2014, as U.S. output rose to a record for any fourth straight year, Canadian supplies had slipped under 10 %.
Some Canadian producers will hurt 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 stay competitive, said Jeff Tonken, Birchcliff’s chief executive officer.
Meanwhile Encana, certainly one of Canada’s largest gas producers, has stated it had been cutting spending this season by 55 per cent amid the slide in gas and oil prices. The company can also be reducing its workforce another 20 percent, which means that Encana will have more than halved its quantity of employees and contractors since 2013.
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Montney, Marcellus
The production gap forwards and backwards countries is significant.
Last year, Canada produced about 12 billion cubic feet each day of gas, compared with almost 80 billion from the states. Simultaneously, drillers working the Montney shale basin in Western Canada face a disadvantage using the northern fringe of the Marcellus basin in Pennsylvania sitting about 12 times nearer to Toronto.
The region covering 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 more than the U.S. Energy Information Administration had previously forecast. As the quantity of drilling rigs targeting gas has plunged to zero in fields from North Dakota to Oklahoma, you may still find 40 running within the Marcellus and it is 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 New York 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, to the northern U.S. and Canada. To achieve this, the organization needs to turn back Maritimes & Northeast line, which sends gas from Canada’s eastern waters south from the border.
At the same time frame, 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 its make an effort 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 two 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 acquainted with the problem, who asked to not 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 more supply is striking the market,” said Samir Kayande, an analyst at RS Energy Group in Calgary. “Wherever it comes down from, it’s likely to lower prices for everybody.”
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