Canadian gas demand saw strong growth in March, increasing by around 1.7 bcf/d y/y (15%) to 11.5 bcf/d, though much of this is down to last year’s incredibly mild March. All regions experienced solid demand growth over the month on these base effects.
Looking at trade, pipeline data indicate that Canadian net exports to the US were healthy in March at 5.59 bcf/d, higher by 5% y/y. Some colder weather south of the border thanks to late-season winter storms (Nor’easters) helped boost imports from Canada.
Initial NEB estimates for March suggest that production has continued to decline y/y, in line with our expectations. However, the outlook for Canadian output is cautiously optimistic, given the improvement in rig counts and the prospects for promising growth out of Alberta, especially from the Montney formation. While this formation is low-cost and high-quality, there is a lack of pipeline capacity out of the region, which has depressed Alberta gas prices over the last year.
Realising the importance of the Montney, new pipeline projects are being developed in Western Canada. The North Montney mainline project is being accelerated, with TransCanada recently moving to break the project’s reliance on the stalled Pacific Northwest LNG project (led by Petronas). Instead, the new FERC application submitted in March seeks permission to build a pipeline that will add a much-needed 1.5 bcf/d of capacity to the NGTL system. Construction of the North Montney project is due to start in Q1 18 and to be completed in 2019. Reports suggest that the Alliance Pipeline, which currently delivers an average of around 1.6 bcf/d to the Midwest US market, is also seeking to expand its capacity by 0.5 bcf/d in order to bring more Alberta production south of the border by 2019. Meanwhile, the new TransCanada shipping deal should boost flows on the underutilised mainline pipe from Alberta to the Dawn hub in southern Ontario by 1.5 bcf/d—the company aims to have the new arrangement in place by November.
The Canadian gas rig count has begun its seasonal decline, as the spring thaw reduces the mobility of drilling rigs. The rig count now stands around 78, down by 47 m/m but still much higher than the 33 seen over the same week last year.
Over March, Canada withdrew around 52 bcf of gas from storage, considerably more than the 1 bcf net injection witnessed over the incredibly mild March 2016. As of 7 April, Canadian stocks stood at 420 bcf, which is around 100 bcf lower than last year but still 73 bcf above the five-year norm, which will cap the requirement for injections into storage over the upcoming summer.