At close to 1.3 Tcf in 1988, Canada's natural gas exports to the United States are fast approaching the practical limits of the existing export pipeline system. With a reserves life index exceeding 28 years today and enormous undiscovered resource potential, Canadian gas exporters are well positioned to capitalize on a tighter U.S. gas market in the 1990's. However, although expansion of both the NOVA and TCPL system is ongoing, significant capacity additions will be required if new markets in the U.S. are to be realized. Currently there are a number of pipelines being proposed to serve these markets but their total capacity could exceed the ability of Alberta's gas resource base to provide and sustain the production levels necessary to underpin project financing. Moreover, there are serious questions being posed about the relative netbacks that might be attainable in the various U.S. markets these projects propose to serve, and the impact they might have on the price and availability of supply to domestic consumers. This CERI study will set forth the critical issues that must be considered in choosing among these proposals, examine the competition they will face from U.S. gas supplies, and provide a detailed assessment of their relative costs and benefits to Canadian producers and consumers.
Excess natural gas supplies have been a dominant feature of the North American gas industry over the past three years. Combined with deregulation and improved pipeline access, the resulting gas-on-gas competition has driven prices down on the spot and direct sales markets below what many analysts consider the cost of replacing gas in the Lower-48 states.
Canadian gas exporters have turned this downward price movement and newfound market freedom into an opportunity by taking advantage of the "freer" market structure to offer reliable export gas supplies at competitive prices. The success with which Canadians have utilized flexible prices and relaxed export provisions is reflected in the tremendous growth in gas export volumes over the last two years. Total exports in 1987 exceeded 1986 levels by almost 35 percent, reaching a near record high of 980 Bcf. This growth continued unabated in 1988, with total exports reaching near the 1.3 Tcf level, shattering the previous high of 1027 Bcf set in 1973.
At 1.3 Tcf, export volumes are approaching the practical limits of the existing export pipeline system. With a reserves life index exceeding 28 years today, Canadian exporters are well positioned to capitalize on a tighter U.S. gas market in the 1990s. Although expansion of both the NOVA and TCPL systems to meet growing domestic requirements (and approved exports) is already ongoing, significant capacity additions will be required to meet any further growth in exports.
Consideration by regulatory authorities in Canada of any system expansion to serve U.S. markets will require project approvals south of the border, with the attendant assurances that capacity for transport, long-term demand, and acceptable prices will be available to support these system expansions. It is becoming increasingly apparent that these approvals will be difficult to achieve in the new market-responsive pricing environment.