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Vero Energy Inc > Followup article re NGAS

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Post by 2Clubs on Dec 10, 2010 7:51pm

Followup article re NGAS

Also this follow up article by Schaeffer. Not a single guest on BNN in recommending TRP has expressed concern, In fact RBC had an outperform and target on TRP at $41 today--go figure
2Clubs

2011 Outlook for Canadian Natural Gas

by dj on

Western Canadian gas exports to the United States could be completely displaced into Northern California by

1. Abundant, low cost US natural gas production, and

2. By several new gas pipelines in the US…

Says a new market study by Bentek, a US energy analysis company.

Overall, Canadian gas exports to the US will drop 2 bcf/d over thenext few years – almost 30% – and this impending loss of the northernCalifornia market builds upon the loss that western Canadian gas has inlower exports to the US northeast.

Increased Canadian demand and declining Canadian supply will pick upsome of the slack, but it won’t be enough to offset a significant lossof exports to the US market in the near term, they add.

Bentek’s report, titled “The Big Squeeze,” is a report that alsooutlines how fast growing production from the Marcellus shale inPennsylvania is displacing Canadian gas to the lucrative Northeast USmarket, and how new pipeline capacity carrying low cost gas out of theRocky Mountains is now set to displace much of Canadian gas to the USMidwest and lucrative California markets.

“What we outlined in our study was complete displacement of Canadiangas into Northern California by the summer of 2014,” says Jack Weixel,Director of Energy Analysis for Bentek.

Last summer I wrote about how the new $6 billion Rockies Express pipeline,or REX, going from Colorado to Ohio, was displacing western Canadiangas production by almost 10%. Lately, US natural gas production fromthe Marcellus shale has also been displacing Canadian gas to the USNortheast. Canadian suppliers have been able to send more natural gasinto the Midwest and Western US to help make up for that drop.

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But Bentek says even that market is at risk – and Canadians couldsee this market get curtailed within the next two weeks, in earlyDecember 2010.

That’s when low cost Rockies gas supply will start flowing east on the newly installed Bison Pipeline.This will give Rockies producers an additional 0.5 Bcf/d (billioncubic feet per day) of capacity out of the Powder River basin inWyoming. The Bison connects into the Northern Border Pipeline, which moves mostly western Canadian supply.

Image provided by BENTEK (bentekenergy.com)

Weixel expects the Bison Pipeline to create stiff competition forCanadian gas. He says Canadian gas has to get cheaper to staycompetitive.

“They (Canadian gas producers) need to drop 14 cents (an mcf). Let’ssay Rockies gas is $3.50/mcf – that means that AECO (the Canadiannatural gas benchmark price out of Edmonton) needs to be priced $3.36 tobe competitive in northern California,” says Weixel, adding that thebreakeven price for certain Rockies gas producers in the Pinedale andJonah tight sands plays is “well below $3 per mcf.”

Weixel expects net Canadian exports to drop 2 bcf/d through 2015 –out of a total of 6.9 bcf/d now. But it’s not all gloomy for producers –and their shareholde“At the same time exports are declining, you’vegot Canadian demand growing, primarily from oilsands in the west andcoal retirements in the east,” he says. “You’ve also got productionslipping from conventional gas plays in Alberta. So there is atightening supply-demand balance.

“Traditionally that would lend itself to gas prices gettingstronger. But we believe that due to the drop in exports, that therewill be just as much gas on hand in Canada as there is now. So ifproduction drops 1.5 bcf/d but exports drop 2 bcf/d, they’re up half a“b” a day.

Canadian gas production is actually going up because of theunconventional plays in BC (read: MONTNEY), but Weixel says the gas rigcount in Alberta dropped off a cliff this September, and is about halfthe number it was last year and about one quarter what it was in 2008.

What’s surprising to me is how little both the industry and investorsappear to be concerned about this issue. The Calgary Herald ran asmall story on this, and The Daily Oil Bulletin, which is ready by theindustry only, ran a story (masthead, or lead story). There arethousands of high paying jobs at stake – mostly in Alberta but also innorthern B.C.

NEXT STORY – HOW DOES THIS AFFECT THE PIPELINE COMPANIES?