May 24, 2018 -- Competition For US Natural Gas Market Share Between Canada And The US -- This Is War -- RBN Energy

Permian: there are no less than three "big" articles on the Permian and shortage of takeaway capacity. First, RBN Energy has been talking about this for at least the past year. Now, today, there is a long article over at SeekingAlpha today; and finally, the banner, headline story over at oilprice.com today is "Permian growth is reaching its limit." We saw this at the height of the Bakken boom.


Active rigs:

$71.09↓	5/24/2018	05/24/2017	05/24/2016	05/24/2015	05/24/2014
Active Rigs	65	49	28	82	191

RBN Energy: a drill down report on the US-vs-Canada battle for gas market share.

With natural gas production growth outpacing gas-demand growth in both the U.S. and Canada, gas producers in both countries are engaged in an increasingly fierce and costly fight for market share.

Until recently, there were only skirmishes. For instance, when burgeoning Marcellus/Utica shale gas supplies lowered Northeast destination prices, TransCanada cut transportation rates on its mainline to help Western Canadian suppliers compete. When Northeast supply eventually exceeded Northeast demand on an annual basis, Canadian producers and shippers redirected more gas exports to the Midwest and West markets.

But now, supply congestion on both sides of the U.S.-Canada border is worsening in every border region, to the point where options to maneuver into alternative markets are shrinking.

This is war, folks — competition for U.S. gas market share between Canadian and U.S. producers is about to get much stiffer and the price discounts much deeper — deep enough to eventually price some production basins out of the market. Today, we discuss highlights from RBN’s new Drill Down Report on the subject.

Combined Lower-48 U.S. and Canadian natural gas production has increased to a staggering 96 Bcf/d, but gas demand within the two countries has not kept up. On the Canadian side, there is a growing imbalance between supply and demand in Alberta (where 80% of Canada’s natural gas is produced), which is exacerbated by the constraints for gas moving from the supply area to intra-provincial destination markets, namely the oil sands demand area in eastern Alberta. Gas production has been climbing for the better part of this decade, and just last November (2017) it breached the 16 Bcf/d mark, returning to the highest level since 2008, after it had dropped back to less than 14 Bcf/d in 2012.

The biggest factor driving oversupply conditions in North America is what’s happening south of the border in the U.S. Since January 2017, Lower-48 gas production has catapulted from about 70 Bcf/d — which marked the nadir since the oil-price crash in the second half of 2014 — to nearly 80 Bcf/d currently, an astounding 14% jump in the span of less than 18 months.

It will come as no surprise that the bulk of that increase came from the Marcellus/Utica shale region in Pennsylvania, Ohio and West Virginia. Unlike the first wave of Marcellus/Utica supply growth earlier this decade, though, most of the incremental gas this time around is moving well past the boundaries of Northeast states to other U.S. regions and even Canada, effectively “stealing” market share from other supply basins. East-to-west pipeline expansions from Ohio, like the reversal of Tallgrass Energy’s Rockies Express (REX) Pipeline Zone 3 segments and Energy Transfer Partners’ new Rover Pipeline, are opening the floodgates for Marcellus/Utica gas to increasingly permeate the Midwest and Gulf Coast, where it is running head on into supplies from other growing producing regions, as well as from Canada.