A quintessential occurrence in the natural gas market is for highly prolific basins to become constrained as producers increase production to pipeline capacity limits. Canadian producers are repeat offenders of this market dynamic and are notoriously good at quickly filling excess capacity from gas wells, rivaling those in the Northeast U.S. Over the last decade, Canadian midstream companies, like TransCanada and Enbridge, have completed several pipeline expansion projects to increase takeaway capacity, but those expansions were quickly filled. Also, Canadian natural gas production growth is further impeded by gas-on-gas competition from Bakken and Northeast U.S. producers, both of which have successfully reduced Canadian imports into the U.S. Without additional in-basin demand growth or incremental takeaway capacity, Canadian natural gas production will likely remain constrained and unable to grow beyond the current 18 Bcf/d of dry gas production. However, thanks to several recent announcements surrounding Canadian LNG projects, production growth in the medium term might have found a way to punch its ticket.
British Columbia and Alberta pipeline infrastructure is designed to flow ~14 Bcf/d of gas out of the provinces. However, gas-on-gas competition from the Bakken and the Northeast U.S. has backed out some of these volumes and reduced the effective takeaway capacity to ~10.5 Bcf/d. BTU Analytics recently discussed the ability of Bakken gas to displace Canadian gas on Northern Border Pipeline, highlighting that Canadian flows are likely to be capped at 0.5 Bcf/d for the foreseeable future. This displacement of Canadian volumes pushed effective capacity utilization on an annual average basis from 83% in 2021 to 90% in 2022, while 1Q23 has averaged 99%.
With no new BC/AB export pipeline expansions planned in the near term and continued gas-on-gas competition from U.S. producers, Canadian gas production will be capped until additional in-basin demand arrives. Enter new LNG export facilities on the west coast of British Columbia.
In the early 2010’s, there was a surge of LNG project announcements along the Canadian west coast. However, few of them made it to permitting and even fewer made it to the construction phase. Of the 25 Bcf/d of LNG announcements made over the last 15 years, 20.6 Bcf/d has been canceled or is presumed canceled due to lack of updates in the last five years, 2.6 Bcf/d is in the permitting phase, and 1.8 Bcf/d is under construction. Some key highlights include:
- As of September 2022, LNG Canada was 70% complete and Coastal Gas Link pipeline, which will supply the facility, was 75% completed.
- Cedar FLNG will also be supplied by Coastal Gas Link and is located downstream from LNG Canada. While the facility adds additional LNG demand, it will not increase takeaway capacity on Coastal Gas Link.
- Both Tillbury phases are located upstream from Woodfibre LNG and will rely on the Enbridge T-South expansion and the Eagle Mountain-Woodfibre pipeline expansion.
Ksi Lisims LNG received an export license from the Canadian Energy Regulator in December 2022, but British Columbia’s Environmental Assessment Office still needs to review the plan. However, this project requires a new supply source since the prior options (Prince Rupert Pipeline and Westcoast Connector Pipeline) are both on hold.
The current status of projects shows only 1.8 Bcf/d of additional demand from LNG Canada and Port Edward LNG is expected in the near term, as the remaining proposed projects all need to clear the environmental assessments at the BC regulator to move forward. For the remaining proposals to meet targeted in-service dates, they would need to begin making progress on permits or risk delaying their timelines.
While BTU Analytics only includes 1.8 Bcf/d of incremental production growth due to LNG Canada in the current production forecast, an additional 2.6 Bcf/d of additional upside is possible should the other projects make significant moves forward this year. However, with only one project under construction, Canadian production growth in the medium term will likely only be limited to 1.8 Bcf/d. To see what other risks BTU Analytics sees for Western Canada natural gas production, see the March 2022 edition of the Upstream Outlook.