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Canadian Gas Ready to Fill US Supply Gap

Source: Natural Gas Week, October 19, 2020

US gas producers have slashed rig counts and drilling activity in a wave of fiscal restraint. But for Western Canada’s gas suppliers, this has opened a window to renewed export prowess lost when Canada’s share of the US market shrank due to the shale boom. 

With US gas prices widely expected to rise north of $3 per million Btu this winter and for much of 2021, Canadian suppliers will have a new economic incentive to ship their excess gas south of the border to help fill the expected gap left by falling US supply. And that should help keep a $3/MMBtu US market from soaring to $4/ MMBtu.

“We agree that Canadian imports are likely to rise as US tightening balances are increasingly reflected in higher US gas prices,” Goldman Sachs analyst Samantha Dart told Energy Intelligence. “Historically the US has been quite efficient in pulling Canadian gas in when needed and pushing it out when no longer necessary.”
Western Canadian producers have had a particularly hard time getting gas into the US since the shale boom. Imports from the Western Canadian Sedimentary Basin (WCSB) averaged roughly 10.3 billion cubic feet per day in 2007 and had shrunk to 7.4 Bcf/d in 2019, US Energy Information Administration (EIA) data show. The downtrend was driven not only by the newfound abundance of gas in the US but, also much narrower price differentials to border export points.  
But shale pressures should ease as Appalachian independents put on the brakes, widening Canada’s market share in the US — especially in the Midwest and Northeast. Dart said Canada could receive a net 1 Bcf/d boost this winter and into next year if US winter prices average $3.40/MMBtu and summer prices $3.25/ MMBtu.

Canadian flows could also work to keep end-of-March gas storage inventories at adequate levels once normal winter demand is met, she said.
“But the same cannot be said under a colder-than-average winter,” she cautioned. “Even a 1.8 Bcf/d year over year increase in net Canadian imports … would not make up for the impact of a one standard deviation colder-than-average winter on demand, which we estimate around 3.3 Bcf/d.”

Barring that, Dart said the market could see a combination of higher Canadian flows to the US and lower flows from the US into Canada, similar to winter 2017-18 when Canadian imports averaged 8.4 Bcf/d and US exports averaged 2.6 Bcf/d. The EIA reported net Canadian flows into the US averaged around 4.4 Bcf/d last January, or about 1.5 Bcf/d lower than the previous winter. 

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