Canadian natural gas prices, US demand down: industry in flux

The US could be a net exporter of LNG by 2015. Canada. The Conference Board of Canada says Canada's natural gas industry could be in for a tough few years as it shifts the export lines from south to west (i.e. to Asia).

Canada’s exports of natural gas to the United States are down, and prices for the commodity are also down, making the future of the industry less bright than previously. With the cost of Canadian natural gas nearly 40 per cent lower than a year ago, fewer wells will be drilled in this country. The Petroleum Services Association of Canada, which represents Canada’s energy service companies, reduced its forecast for new drilling in Canada by 11 per cent.

The lower cost of natural gas is partly the result of reduced demand due to a milder-than-usual winter, as well as increased production across North America from shale gas deposits. Gas producers say that developing gas plays is not profitable at current prices: gas sold for $2.60 per million British Thermal Units on the New York Mercantile Exchange today. To be profitable, gas has to sell at $3.50–$4.00 per mmBTU.

Though the price of gas fluctuates, a longer-term problem for Canadian producers is the increasing production of gas in the United States. As President Obama said in his State of the Union speech earlier this week, he wants America to use the shale gas resources that it has. Canada’s exports to the US have already fallen progressively since 2006; with new production coming on-stream in the US, those exports will likely drop further. The US could be a net exporter of liquefied natural gas by 2016, say some observers, as it fully exploits resources such as the Marcellus Shale deposit

One bright spot for the natural gas industry in Canada is, ironically, the oil industry. The Conference Board of Canada estimates that the oil-sands industry’s demand for natural gas could double by 2015, which would offset the lessened demand from the US.