Canada has so much natural gas right now that its storage market is near capacity. If the storage fills completely, it will be a first.
Analysts in the U.S. are concerned about the same situation happening here, but Canada is much closer to that scenario.
So, what will happen? Price shocks? A plummet in drilling? An increase in exports? How does the U.S. factor into the situation?
In its most recent numbers, the Canadian Association of Petroleum Producers said that Canada produced 5.4 trillion cubic feet (tcf) of natural gas in 2010, with Canadians consuming 2.8 tcf of natural gas. This represents about 30 per cent of all energy consumed in Canada. Canada exported 3.3 tcf of gas to the U.S. in 2010, and eastern Canada imported 0.7 tcf of gas in 2010. About 480,000 kilometres of pipeline help deliver natural gas safely and reliably to more than six million homes, businesses and institutions across Canada. In Canada natural gas is used to heat homes and businesses, to generate electricity, to fuel vehicles and as a feedstock for fertilizers and chemical processes.
Producers don’t normally “shut in” wells, according to naturalgas.org, but if Canada shuts in one third of the gas supply it would take the pricing for the rest of the market down to an unknown number—potentially close to zero. This is not a desirable situation since processing and transportation costs are already taking profit margins close to, or even under zero.
Recent trends, however, are working in the Canadian producers’ favor. These trends include:
- Exports to the U.S. increase during the summer to help with the air conditioning/power demand.
- Natural gas production in the U.S. has increased steadily for a few years. Canadian production has been declining for years. So far this year production has already declined over 2 bcf/d.
- Private storage of gas is not accounted for in official statistics.
- Canada is already shipping a lot of gas into U.S. storage.
Despite the positives, there’s still a likelihood of seeing gas shut-ins in Canada a situation that is detrimental to Canadian producers—prices will continue to sink. Canada is seeing just over $1.60 per thousand cubic feet of gas (mcf). That isn’t enough to turn a profit, though. Processing and transportation costs can eat up most if not all of that. The industry needs at least triple that price to make money.
For now, this situation is only a possiblity. But it’s not a situation that anyone wants to deal with. Thousands of people are employed by the companies that would be affected by such a situation.