NEB Says Nat. Gas Supply to Decline as Market Recovers

The current downturn in drilling activity is expected to put a significant dent in Canadian natural gas supplies over the next two years, says the National Energy Board's (NEB) report Short-term Canadian Natural Gas Deliverability 2009-2011, released earlier today.

Abundant supply and reduced demand have slashed North American natural gas prices from a record high of $13/MMBtu in July 2008 to below $2/MMBtu in September 2009. In response to lower prices, drilling activity in Canada and the U.S. has slowed to roughly half the levels of previous years. On 1 September there were 199 active rigs in Western Canada, compared to 412 at the same time in 2008.

Since conventional gas represents a substantial majority of North American supply, the decline in drilling is likely to begin to reduce deliverability (the ability to produce gas from new and existing wells).

Meanwhile, tight gas and shale gas drilling activity in northeast B.C., Quebec and the Maritimes is expected to continue at modest levels into 2010 as the industry seeks to gain knowledge and refine its techniques. Activity levels in northeast B.C. could begin to increase over the 2010 to 2011 winter period if proposed pipeline projects are approved and developed. Overall, deliverability is expected to decline by about 17 per cent by 2011.

"Drilling activity is slowing in response to current market conditions, but our projections show that there will still be sufficient natural gas to serve Canadian markets," said NEB Chair, Gaétan Caron. "As the market begins to recover, and demand increases, we will see a return to more normal levels of drilling activity." Canadian demand for natural gas is expected to grow by six per cent between now and 2011, with most of the increase coming from oil sands development in Western Canada.

This report provides an update to the NEB's 2008 outlook for Canadian gas deliverability.The NEB will release its next annual outlook for short-term Canadian natural gas deliverability in March 2010.