Alberta’s biggest customer is now our biggest competitor

Over the past decade, Alberta’s production of natural gas has been decreasing. In 2004, Alberta produced almost 14 billion cubic feet of natural gas per day. In 2014, Alberta’s natural gas production averaged 9.9 billon cubic feet (Bcf) per day.

This is partly a reflection of the fact that our conventional gas reserves are declining. However, a lot of the decline in production is also due to competitive pressures, particularly rise of natural gas production from the United States.

Around 2008, energy companies began unlocking deposits of U.S. shale gas. Trapped in tight rock formations, shale gas had long been considered inaccessible. But advances in technology (horizontal drilling and multi-stage hydraulic fracturing), combined with strong prices, suddenly made shale gas economically feasible.

The impact of this has been dramatic. As seen in the chart above, U.S. natural gas production has surged. To put this in perspective, Alberta’s total daily natural gas production in 2014 was less than half the amount that U.S. shale gas daily production has increased since 2008.

Unlike oil, which is priced globally, natural gas prices are more continental in nature. The transport and delivery system is not as well developed for natural gas as it is for oil, in part because North America was largely self-sufficient up to the late 1990s. It is also in part because gas is more expensive to transport (as a share of its heat value) than oil.

As a result of the abundant supplies produced from U.S. shale, natural gas prices in North American have fallen sharply. This decline in prices has contributed to a decline in natural gas production in Alberta.

The U.S. shale gas revolution has also impacted Alberta’s natural gas exports to the United States.

For decades, Alberta was the major exporter of natural gas to the U.S. Now that it is producing much larger volumes in its own backyard, the U.S. has reduced its natural gas imports, including the amount of gas it buys from Alberta.

In 2014, Alberta exported on average 4.1 billion cubic feet of natural gas per day to U.S. markets, which constituted approximately 41% of Alberta’s total gas production. This is a substantial change from 2007 (i.e. prior to the U.S. shale gas revolution), when Alberta exported on average 7 billion cubic feet of natural gas per day to the U.S. (or about 53% of total production).

Ten years ago, U.S. shale gas simply wasn’t an available option. Today, it’s a feasible alternative to Alberta natural gas.

Sources: Alberta Energy; U.S. Energy Information Administration