National Energy Board

www.neb-one.gc.ca

Common menu bar

• Français
• Home
• Contact Us
• Help
• Search
• canada.gc.ca

Breadcrumb

Home > Speeches and Presentations > Speeches and Presentations 2004 > Gas Supply and Price in Canada and British Columbia: Recent NEB Work

Gas Supply and Price in Canada and British Columbia: Recent NEB Work

InSight 2^nd Annual B.C. Power Summit

John S. Bulger
Board Member
National Energy Board

10 September 2004

Outline

The purpose of my presentation today is to share the Board's perspective on how the natural gas market is unfolding in British Columbia. I will be discussing market developments in British Columbia within the context of Canadian gas resources and wider North American gas market developments. I will conclude my presentation by making a few observations about the role of gas in power generation.

First though, I would like to take a moment to provide you with a brief introduction to the National Energy Board.

NEB Mandate

The Board has both regulatory and advisory responsibilities which have changed little since its inception in 1959.

The Board regulates over 45,000 km of international and inter-provincial pipelines. The Board also regulates the export of natural gas, oil and electricity. Energy trade accounted for $62 billion dollars in gross revenue to Canada last year and provided Canada with an energy trade surplus of $36 billion dollars.

Other aspects of the Board's mandate include: the construction of international power lines, exploration on federally-regulated lands (including the Offshore West Coast) and the provision of advice to the Government of Canada.

NEB Regulates 45 000 km of Pipeline

These maps identify the natural gas and oil pipelines regulated by the Board. As you can see, these pipelines span many parts of Canada, including the Westcoast system in British Columbia.

Our Goals

The Board has developed a set of five goals that cover safety, the environment, the functioning of markets, public engagement and the management of its people and resources. The NEB has a mandate to keep energy matters under review.

As part of that mandate, the Board has recently published several Energy Market Assessments that are of relevance to the British Columbia gas market and I would like to share some of these results with you today.

Canada Conventional Natural Gas Ultimate Potential

In the spring of this year, the NEB released a status report on Canada's conventional natural gas resources. This report found that Canada currently has an estimated 501 Tcf of ultimate marketable (after gas processing) natural gas potential.

Presently, natural gas is produced in only three of Canada's potential supply basins: the Western Canada Sedimentary Basin, Ontario and Offshore Nova Scotia. Over half of Canada's ultimate potential is in the Western Canada Sedimentary Basin, of which 134 Tcf or roughly half has been produced.

B.C. Conventional Gas Ultimate Potential

Ultimate potential in B.C. consists of 51 Tcf in Northeast B.C., which is part of the WCSB. A further 8 Tcf is thought to exist in B.C's Intermontane Basins, notably the Bowser and Nechako Basins and about 9 Tcf are ascribed to the West Coast offshore.

The majority of offshore natural gas resources are expected to be found in the Queen Charlotte Basin, which is the largest offshore basin. Uncertainty about resource estimates is higher for lightly explored Intermontane basins and the West Coast offshore than for Northeast B.C.

B.C. would appear to have a large conventional gas resource potential that exists for future exploration and development. To date, all of B.C.'s production has come from Northeast B.C., where approximately 16 Tcf has been produced.

B.C. Gas Resources in a Canadian Context

In addition to conventional natural gas from Northeast B.C. other sources of gas can be called upon to supplement supply. Already producers are experimenting with obtaining natural gas from B.C.'s coal deposits, for example in Southeast B.C. Conventional exploration could also expand to B.C.'s largely unexplored Intermontane Basins.

The importation of LNG is another option for expanding B.C.'s gas supplies and you have probably seen press reports of projects to import LNG at Prince Rupert and Kitimat. In the future, Northern gas supplies could also enter the B.C. market. Other potential resources are the West Coast offshore and in the very long-term gas hydrates.

North American Gas Market Context

In the next segment of my presentation I will provide you with my perspective on the current gas market. This spring the NEB conducted a series of cross country round tables with market participants to identify gas market issues. In a recently released report based on those round tables, the Board identified some key recent market developments:

First, we live in a fully integrated North American market in which the players are constantly changing. Natural gas can be bought from many supply sources and delivered to many market centres through an extensive North American pipeline grid. Moreover, regional supply and demand conditions can be felt throughout the marketplace.

Second, since the beginning of this decade natural gas prices have increased significantly and price volatility has risen. In contrast, the 1990s was a decade of relatively low and stable natural gas prices. Many analysts believe that there has been a step-change in natural gas prices and attribute this change to a tighter balance between natural gas supply and demand.

Third, almost all current conventional North American supply basins, with a few exceptions, are displaying signs of maturity, that is flat or declining total basin production, declining well productivity, small pool sizes and an overall lack of conventional drilling prospects. This includes the Western Canada Sedimentary Basin in Canada. In the United States, production growth in the Rockies has been unable to offset declines in other basins. In all, continental gas production has been flat and difficult to grow at best.

Fourth, the nature of natural gas consumption has changed with changing energy market conditions. The electric power generation sector has emerged as a major source of gas demand in addition to the traditional residential/commercial and industrial sectors. Meanwhile, the industrial sector, and especially users of natural gas for feedstock, such as methanol and fertilizer manufacturers, have reduced demand in light of higher natural gas prices.

Fifth, the environmental properties, convenience of use, ease of deliverability and burner-tip efficiency characteristics of natural gas promote a price premium for natural gas usage relative to other fossil fuels.

Transportation Developments

In April of this year the NEB released a report on the B.C. natural gas market that examined the impact of some of these major market trends on the British Columbia gas market.

One of the major findings of this report was that gas transportation developments since 1998, have facilitated the movement of B.C. produced gas to markets east of B.C.

These developments include expansions to the TransCanada system, the Alliance pipeline from Northeast B.C. to Chicago and producer built cross-border pipelines that provide access to the TransCanada Alberta system.

For example, much of the volume from the highly prolific Ladyfern field was transported to the TransCanada Alberta system through producer owned pipelines.

Gas production in Northeast B.C. has become increasingly connected to the North American transportation grid.

Natural Gas Prices in B.C. Are Integrated With North America

As a result of transportation developments, prices paid at major pricing points for B.C. gas i.e. Sumas/Huntingdon at the B.C./Washington border and Station 2 in Northeast B.C. on the Westcoast system have become increasingly integrated with North American prices.

For much of the 1990s, there was a price gap between the NYMEX price of gas (the blue line on the chart) and major pricing points for B.C. gas. By the end of the decade prices were more closely aligned, until the California energy crisis in the Winter of 2000 and 2001, when the price of gas at Sumas/Huntingdon reached Cdn. $20/gj on the spot market. B.C. prices, thereafter, have remained closely aligned with NYMEX, although at a higher level than in the 1990s.

Significant Step Upward in B.C. Gas Prices

This chart compares the annual average natural gas price between Sumas/Huntingdon, Station 2 and AECO-C in Alberta and demonstrates that there has been a significant step upward in B.C. gas prices along with the rest of North America. Since about 2002, the price of gas at pricing points for B.C. gas has been very similar to the price of gas in Alberta, whereas prior to 2002 Sumas/Huntingdon was a premium market for natural gas.

B.C. Consumers Are Reducing Demand

As gas prices rose for B.C. consumers, B.C. consumers responded to higher prices by reducing demand. B.C. natural gas end-use demand has been flat since 2000 and declined in 2003. Industrial demand in B.C. has been in decline for the last two years.

Lower Mainland consumers have reduced household gas consumption, on a weather adjusted basis, from 120 GJs in the late 1990s to about 104 GJs in 2003.

Even export users of B.C. gas have reduced consumption since 1998, when natural gas exports to the Pacific Northwest through Huntingdon peaked. However, while overall exports of B.C. gas through Huntingdon are lower, more of the gas that is crossing the border is finding its way into the power generation market, rather than the traditional industrial market.

The Pacific Northwest is a simultaneous winter peaking market. Residential and commercial natural gas demand for heating peaks at the same time as electricity demand peaks for heating. The result is an increasingly peaky, weather sensitive demand for gas in the Pacific Northwest.

Producers in B.C. Are Increasing Exploration and Production

Another major observation is that producers in B.C. have responded to higher prices by increasing exploration activity and production. Although many factors impact drilling activity including the quality of geological prospects, land and pipeline accessibility, the regulatory environment and available technology, higher natural gas prices have been a key factor encouraging rising drilling activity in Northeast B.C.

This is clearly demonstrated by the chart that illustrates the fall in drilling activity in Northeast B.C. in 2002, when gas prices fell and then a strong recovery in 2003 when gas prices rose.

B.C. Gas Market Issues

In summation, what are the major issues facing the B.C. gas market?

Supply: There is increased competition for Northeast B.C. supply from other parts of North America.

Demand: Using gas for power generation has an impact on other gas users including residential/commercial and industrial consumers.

Price: The price of natural gas in B.C., as elsewhere in North America, has reached a new higher price level and natural gas users are learning to manage consumption at these prices.

Price Volatility: Price volatility is set to continue because of a tighter North American supply/demand balance and growing sensitivity of gas demand to weather events.

Infrastructure: Finally, the lack of a major gas storage facility in the Lower Mainland has limited market options for dealing with major weather events. To some extent this is being ameliorated by storage expansions at Jackson Prairie and Mist in the Pacific Northwest.

Closing Remarks

I would like to end my presentation by making a few closing remarks that are relevant to the power generation theme of this conference.

Gas-fired power generation is part of the generation mix - the use of gas for power generation is here to stay. Gas supply is available at a price, and B.C. is blessed with an array of potential supply options, however, these are becoming increasingly expensive to develop. Supply cost thresholds rise as resources become more remote from market areas and require more advanced technology to develop. Although, natural gas is perceived as a premium fossil fuel, there are still air quality and other environmental and social impacts that must be managed.

The NEB has for many years been a highly respected provider of energy market information; we will strive to maintain this tradition of excellence in information provision. The Board will continue to monitor market developments in the British Columbia gas market. At this point, I would like to mention that the Board and the B.C. Ministry of Energy and Mines are exploring a joint assessment to update ultimate potential estimates for conventional gas in Northeast B.C., for possible release in 2005.

Any of the Energy Market Assessments I've mentioned today are available from our Web site or through the NEB library.

Thank you for your attention.

 

Primary navigation (left column)

Date Modified:

2011-10-28