Canada – Apr 2017

Published at 12:08 16 May 2017 by

Net exports from Canada to the US averaged 5.32 bcf/d in April, which is lower by 0.73 bcf/d y/y. The slowdown came as Canadian gas demand increased by around 4% y/y. Strong gas demand in the west more than offset a decline in eastern Canada. In May, Canadian gas demand should again be higher y/y, owing to the negative impact last year’s Fort McMurray wildfires had on demand, especially from the oil sands sector.

Unlike the situation south of the border, Canadian gas production is showing clear signs of improvement. Our analysis of 23 producers’ recent earnings calls show production in Q1 17 growing sequentially by 0.38 bcf/d, while guidance from the companies indicates most are expecting sequential growth to continue for the rest of this year.

In line with this outlook, the Canadian gas rig count currently stands at 51, which is nearly double last year’s 26 at the end of the mud season. This year’s levels are more in line with seasonal norms, with the exception of 2014, when the gas rig count was closer to 90. Current levels auger well for the aforementioned producer guidance to be met.

In Western Canada, end-April storage levels at around 455 bcf are around 80 bcf lower y/y. Last month, injections fell to nearly half the year-ago level. While superficially that may sound alarming, stocks ended April around 50 bcf above the three-year norm. Month-to-date data from TransCanada show that western storage levels are filling more rapidly than last year, with injection rates of between 0.8 bcf/d and 1.0 bcf/d compared to 0.6 bcf/d in early May 2016.

In Eastern Canada, inventories reached nearly 105 bcf at the end of April, lower by around 30 bcf y/y. We estimate that the injection rate for the remainder of the season will need to be between 0.6 bcf/d and 0.8 bcf/d in order to ensure adequate levels stocks ahead of the 2017-2018 winter heating season. Typically, the eastern region fills to around 240-260 bcf in order to serve the region’s many heating consumers during winter.

The key storyline going forward is that while Canadian production is improving, storage levels in the west are unlikely to be filled to the same level as last year. Instead, Canadian producers are more likely to sell their excess volumes to the US, given the y/y shortfall in US supplies and the positive price signal to send gas south, with the Chicago-AECO spread still wide at around 0.9 $/mmbtu. While we continue to expect net exports to be flat y/y over injection season, upside risks remain given the underlying production trends and the lower, but still seasonally adequate, inventories in the west.

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