Current Supply/Demand Outlook And Its Impact On Gas Marketing Strategies
Authors: Maffitt D. 
Published: March 2010

Introduction

This paper will focus on the current supply/demand outlook for conventional natural gas in Canada, starting with a review of supply trends since the deregulation of natural gas marketing in 1985/86. Market demand trends and expansion of export pipeline capacity will then be summarized in an overlay fashion to illustrate how radically the North American gas marketing industry has changed in the last decade. This will provide the foundation for a general discussion and analysis of the impact these changes have had on natural gas marketing strategies and activities.

Supply

In order to put Canadian gas supply into perspective, it is useful to first look at the subject from a global viewpoint. In addition, a complete discussion of natural gas supply must address both gas reserves and production rates. The ratio of gas reserves divided by production rates, referred to as the reserve life index or R/P ratio, gives an indication of the industry's efficiency in converting its gas reserve "assets" into cash flow.

FIGURE 1: Western Canada reserves. (Available in full paper)

As of January 1, 1993. Canada ranked eleventh in the world with respect to remaining established gas reserves. The 96 Tcf of Canadian gas reserves, however, is dwarfed in comparison to that of the world leader, the former Soviet Union, which is estimated to have nearly 2,000 Tcf of gas reserves. Moreover, Canadian reserves represent only 2.0% of global gas reserves. It is also important to note that about 25 Tcf of Canadian gas reserves are in "frontier" areas and are not on-stream yet, leaving only 71 Tcf of reserves that can access existing production infrastructure.

Canada is definitely a "world class" natural gas producing nation, ranking third (5 Tcf/year) behind the former Soviet Union (29 Tcf/year) and the United States (19 Tcf/year). The production numbers reflect raw gas production, less volumes reinjected for pressure maintenance. Canadian production represents less than 7.0% of total global production.

The R/P ratios for the top three gas producers reveal that the U.S. is the most efficient (9 years), followed by Canada (19 years), with the Soviet Union in third place (67 years). If Canada's frontier gas reserves are excluded from the calculation, Canada's R/P ratio improves to 15 years, as of January 1993.

Figure 1 illustrates the change in remaining marketable gas reserves by province in the Western Canadian Sedimentary Basin since 1985, when gas pricing and market access were deregulated in Canada. The oversupply mandated and created through the prior decade of regulation has been reduced by nearly 10 Tcf of reserves during the 1985–1994 period. This represents a 13% decrease in gas reserves in Western Canada.

The larger impact of deregulation has been on Western Canada's gas production rates, which are illustrated in Figure 2. Since 1985, gas production rates have increased steadily and rapidly; nearly a 75% increase! This growth was facilitated by the timely expansion of provincial pipeline systems as well as downstream pipelines connecting Canada to the huge U.S. market.

FIGURE 2: Western Canada production. (Available in full paper)

FIGURE 3: Western Canada reserve life index. (Available in full paper)