Experience RS

What’s With Canadian Gas Exports?

Canada to the US averaged 3.76 Bcf/d in April 2020 and 3.86 in May, the lowest levels in the past 10 years. Why are exports so low, and is this downward trend going to continue?

Net Canadian exports are determined, generally, by exports from the West and imports in the East. Eastern imports are up 0.3 Bcf/d YTD from 2018 averages, driven, in part, by new pipelines connecting Eastern Canada to Appalachian supply. But falling western exports, down 0.75 Bcf/d over the same time, is by far the bigger reason for the decline.

Western exports held up for the 2019-20 heating season but storage levels dropped to historic lows. As a result, Alberta storage injections began at a ferocious pace as winter ended (Figure 1) and are expected to continue this summer. We believe producers will opt to sell their gas next winter when prices are likely to be much stronger.

In addition, production in Western Canada is falling, resulting in less gas to export. Low gas prices last summer at Alberta’s major trading hub prompted producers such as Ovintiv (OVV), ARC Resources (ARX) and Advantage Oil & Gas (AAV) to focus on liquids-rich parts of the Deep Basin and Montney with the few rigs they kept active. Reduced drilling caused gas production at the end of 2019 to decline 300 MMcf/d from December 2018, the first such drop since 2016.

But will this continue? Supply and demand balances are likely to remain messy in the Lower 48 this summer, and market participants in Canada look primed to continue to utilize storage to protect their bottom lines. RSEG expects net exports through the third quarter of this year will remain flat from the second quarter at 3.9 Bcf/d (Figure 2). We anticipate exports will pick up in final three months of 2020 to 4.5 Bcf/d, driven by declining L48 production and a recovery in US liquefied natural gas exports.

FIGURE 1 | Canadian Natural Gas Storage Withdrawals and Injections

''Source | RSEG, raw data provided by Genscape

 

FIGURE 2 | Canadian Net Exports

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Source | RSEG, raw data provided by Genscape 

 


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