February 27, 2021

The resurgent Canadian Natcos makers are looking horny in the US market

Calgary, Alberta: Canadian natural gas producers are advancing faster than US shale companies affected by the COVID-19 epidemic, which is set to increase net gas exports to the United States for the first time in five years.

The prospect of Canadian companies reclaiming a portion of the market from American rivals is changing one of the dominant energy trends of the past decade, where U.S. shale drills have unleashed a flood of cheap gas – often a product of crude oil drilling – and pushed Western Canadian manufacturers out of their sole export market.

Canadian drilling is being taken up quickly, triggered by better pipeline access, because U.S. manufacturers have reduced crude production, along with the gas produced with that oil. Canada’s production is projected to continue to rise as coal-fired power plants retire and launch its first liquefied natural gas plant.

Oil and gas producers across North America endured a brutal 2020 as the epidemic crushed. Canada’s fall was furious because companies cut gas rickshaws from 92 at the beginning of 2020 to just nine by June.

Now, Canadian gas companies are going back to work, and have plans to increase capital expenditure this year for the first time since 2014.

Canada’s rig numbers have risen from nine to 76, while the U.S. gas rig has risen from 90 to 68 in July, according to Baker Hughes data.

“We believe that some increase in expected capital expenditure for 2021 will drive the Canadian natural gas producers to capture market share from the associated natural gas depletion in many major US shale basins due to drilling and production recession,” said Tim Mick, chief executive of the Canadian Petroleum Producers Association (CAPP). Said.

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Net Canadian gas exports grew 31 percent year-over-year to 6.3 billion cubic feet per day (PCFD), the highest in a month since March 2018, according to data provider Refinitive.

Goldman Sachs estimates that after falling to a 30-year low in 2020, exports to the United States will rise by an average of 29 percent to 5.8 PCFT this year. This is the first increase since 2016.

Canadian gas exports to the United States have been declining since 2002, especially as the US shale boom of the past decade has opened up cheaper gas and robbed Canadian shipping exporters of market share in the U.S. Midwest and East Canada.

(Graphic: Canada Natural Gas Exports Due to Jump, https://fingfx.thomsonreuters.com/gfx/ce/qzjpqgekwpx/Pastedper cent20imageper cent201613076631942.png)

Raising the Canadian cap, U.S.

S&P Global Platts Analytics reports that Canada’s gas production will increase by 0.5 pcfd to 15.9 pcfd this year. According to government data, the country’s production in 2001 was 17.5 PCFD.

Canadian oil and gas producers are projected to see a 14 percent increase in costs, and according to the CAPP, that increase comes from gas-centric companies.

“We have a big capital plan this year, and it’s behind a natural gas price recovery,” said Darren Key, chief executive of Phyto Exploration and Development Corporation, which is raising capital spending from CUS $ 350 million to CUS $ 200 million by 2021. Last year.

Senovus Energy Inc., Canada’s third largest oil and gas company, has set aside CUS $ 65 million for increased drilling starting in the third quarter.

“(It) will focus on higher revenue opportunities in a relatively strong natural gas price environment,” CEO Alex Borbikes told analysts in a budget call in January.

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Canadian Natural Resources Ltd., the country’s largest oil and gas producer, hopes to increase natural gas production by 11 percent this year.

In comparison, shale manufacturers south of the border are expected to cut budgets for the third year in a row in 2021, causing U.S. output to fall for a second year.

Cabot Oil and Gas Corp. and CNX Resources Corp. are two of the largest natural gas operators among those cutting costs by 2021.

On top of the fall in U.S. supply, Canadian manufacturers are trying to capitalize on increased demand as U.S. consumption and exports are forecast to reach record levels this year.

U.S. gas consumption, liquefied natural gas (LNG) and pipeline exports are expected to increase by 19 percent, which is expected to increase by about 1 percent by 2021.

Inequality raises prices. Henry Hub, a surrogate for price expectations, expects the future to be around US $ 3 per million British thermal units (mm / pt), a 50 per cent increase from the 2020 average of US $ 2.03, the lowest in 25 years.

(Graphic: U.S.

Spring board year

Of course, the recovery in Canada is in its infancy.

Recent acquisitions and acquisitions at Shale, especially among producers in Canada’s premier Montney play in British Columbia, can cut costs.

On Wednesday, ARC Resources Ltd said it would buy seven generations of energy under a deal that would make it the largest Montney manufacturer.

ARC CEO Terry Anderson said the immediate focus of the integrated company would be to repay the loan, but would look into expanding production next year.

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In the long run, Canadian gas companies are expected to exit the stage of Canadian coal-fired power plants and the country’s first LNG export terminal, which is expected to be completed in mid-decade in British Columbia.

Wood McKenzie sees this year as the beginning of another era of gas growth and predicts that Canadian gas exports will rise to about 9 PCFD by 2030.

“2021 is a springboard year,” said Wood McKenzie analyst Dallas Wang.

(Nia Williams in Calgary, Scott Tsavino Report in New York; Margurita Choi Compilation)