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Canadian Natural Gas Production: What’s in Store for 2017?

Canadian natural gas production has faced many challenges in the last few years. The fall of commodity prices, competition with cheap US shale plays such as the Marcellus and Utica, and slowed oil sands growth due to postponed or canceled projects (a major source of Canada’s natural gas demand) to name a few. If it weren’t for the prolific Montney and Duvernay providing growth amongst an overabundance of cuts, gas production in Canada would be in even more trouble. But as prices stabilize and producers settle in, the big question is: What does 2017 look like for Canadian natural gas producers?

The chart below shows averaged daily production receipts for the main pipelines that serve British Columbia and Alberta (NGTL, Alliance, and Westcoast pipelines). Together these three pipelines account for the majority of gas produced in BC and AB. The receipts on these pipes show a large ramp of production in the last part of 2016, associated with the start of winter drilling season. It should be noted that compared to the last two years, October through December of 2016 reported a much larger growth in daily receipts during this ramp up period. And despite all of the factors working against Canada, gas production managed to remain steady in 2016.

Canadian Natural Gas Production Pipeline Receipts Above 2015 Levels

Going into 2017, the initial pipeline receipt data for the beginning of the year is on par with 2015 levels, yet with a more optimistic price environment. Possibly a good sign for 2017 Canadian production. What’s driving this activity? Higher initial production rates of the growing Montney and Duvernay are helping to offset losses in other regions, but a strong hike in drilling activity near the end of 2016 is also aiding these higher production levels.

The figure below shows wells drilled in BC and AB over the last three years. Drilling activity in Canada has fallen significantly since the beginning of 2014, with one of the largest contributors being reduced activity in the conventional plays of Central Alberta. There is no expectation that activity levels in the near term will reach the highs of 2014 (almost double the current average), however, monthly drilling at the end of our historical data in November of 2016 has already surpassed the previous year’s peak drilling levels. Total drilling in BC and AB could likely increase by nearly 300 wells year-over-year in 2017.

Canadian Natural Gas Production Driven by Higher Activity

While these regions show promises of production growth, Canada still has many obstacles to overcome on the demand side. LNG facilities have been slow to materialize, and currently the US remains one of the only export options. An in depth analysis of the challenges facing Canadian natural gas exports to the US is available in a previous market commentary piece: Dawn Hub Pressure Grows With TransCanada Toll Decreases.

For more information on how Canada relates to our US gas balance and production forecast, join us for our annual What Lies Ahead Conference on February 8th in Houston, TX.

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