Commodity market report

Better wells and more exit capacity: a comeback story for Canadian gas markets

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Report summary

Throughout the commodity price downturn Canadian based producers fine-tuned drilling technology with smarter completions and more frac stages to drive up productivity. Several sub-plays on the BC side of Montney have seen cost breakevens fall by more than $1/mmbtu in the past 6-12 months; dry gas breakevens in parts of Montney and Deep Basin now rival breakevens in key sub-plays in the Marcellus and Utica. Meanwhile, de-contracting on the TransCanada (TCPL) Mainline since winter 2016 has impacted export flows leaving the basin and pressured AECO to the downside. Canadian producers really came together in February 2017 to support TransCanada’s proposed long-term fixed-price service from Empress to Dawn, allowing Canadian producers to compete more effectively in the eastern Canadian markets against US Northeast supply, starting in November 2017. We have revised our WCSB production outlook from the previous update, now featuring sustained production growth over the forecast period.

What's included

This report contains

  • Document

    Better wells and more exit capacity: a comeback story for Canadian gas markets

    PDF 1.92 MB

Table of contents

  • Executive summary
    • Montney and Deep Basin hold significant low-cost gas resources in WCSB
    • WCSB out-competes the US Northeast on the low end of the supply curve but lacks scalability
    • WCSB production reaches 17 bcfd by 2022 as Montney and Deep Basin collectively add 3.5 bcfd of supply in the next five years
    • The two pillars of Canadian demand growth - oil sands and power generation
    • The Pacific Coast features significant market expansion next decade - greatest growth outside of the US Gulf Coast
    • Asia's LNG demand will grow fastest in South and South East Asia
    • Canada and US Pacific Northwest could see over 5 bcfd of gas demand growth over the next ten years
    • New projects over the next 18-24 months will allow Northeast BC producers to access downstream markets in AB and BC
    • USJR has increased by 1.5 bcfd between 2015-2017- anchored mostly by firm contracts on NGLT
    • ACEO/NIT's takeaway capacity increases between the LTFP service and the ABC border expansion
    • Easterm Canada: WCSB holds onto the market as Nexus and Rover divert deliveries away from Vector
    • AECO basis tightens from today's level to around -$0.75/mmbtu when the TCPL bellt service comes online in November 2017
    • Henry Huib prices are likely to strengthen in winter 2017-18 before returning to sustainable levels around $3/mmbtu

Tables and charts

This report includes 16 images and tables including:

Images

  • Producer landscape has shifted from LNG leveraged developers to nimble, domestic producers that are committed to the play
  • Price fluctuation in recent years are highly correlated to these constraints
  • WCSB displaces Dawn imports to serve Eastern Canada
  • Certain gas sub-plays feature cost breakevens around $2/mmbtu at AECO
  • Marcellus and Utica have three times the remaining well locations as Montney
  • Montney gas production reaches 8 bcfd in 2022
  • Demand: western markets lead the way: Image 1
  • Direct and indirect gas exports offset anaemic domestic growth in coastal states/provinces
  • Demand: western markets lead the way: Image 3
  • Demand: western markets lead the way: Image 4
  • BC Montney production historically relies on growth from LNG-leveraged drilled but capital investments have now focused on the wet-gas acreage in eastern part of BC
  • USJR could still be seasonal constrained in the near future with expansions
  • Generic projects will be needed in mid 2020s to accommodate market growth in PNW
  • TCPL Mainline will be the primary path for WCSB to reach Eastern Canada
  • Prices and flows: holding onto the east while expanding into the west: Image 3
  • AECO hovers around $2/mmbtu as stronger AECO basis offsets lower Henry Hub

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