Production Continues Despite Low Market Prices Since the beginning of the shale gas production revolution, approximately eight years ago, horizontal drilling and hydraulic fracturing technologies continue to advance and have allowed producers to continue to drill despite low market prices. This cost effective production has resulted in North American supply remaining virtually unchanged and in a strong supply position relative to demand in spite of market prices trading at such extreme low levels. The low, flat shape of the forward price curve suggests that the market expects the excess supply to remain for the foreseeable future. However, a fundamental shift in demand is in progress as new gas-fired power generation and other natural gas intensive industries have experienced substantial growth in recent years.
Saskatchewan Natural Gas Supply
Changing Saskatchewan Natural Gas Supply Saskatchewan is a net importer of natural gas. Annual demand exceeds production within the province and in 2016-17, slightly more than 60 per cent of gas consumed in the province was imported from Alberta. Saskatchewan had been a net exporter of natural gas and through the shale gas revolution, transitioned to a net importer of natural gas. In addition to the natural gas production decline within the province, a growing demand sector is exponentially increasing the year-over-year gas supply requirement that must come from outside of Saskatchewan. The Impact of Natural Gas Liquids With the transformation of natural gas supply in Saskatchewan, the composition of the natural gas in the province has also been changing. Conventional gas supply contains primarily methane. However, natural gas that is produced with oil has a much higher content of other natural gas liquids including butane, propane and condensate, and contains a higher amount of energy than conventional natural gas. Natural gas produced from shale rock also typically has a higher composition of natural gas liquids compared to conventional production. In Western Canada, the primary area of growth in natural gas supply has occurred in the Montney and Horn River shale basins, located along the northern part of the British Columbia and Alberta border.
0 100 200 300 400 500 600 700 800 900 1,000
Saskatchewan Production Gas Supplied from outside Saskatchewan Saskatchewan Demand
Common Components of Unprocessed Natural Gas
Natural gas containing a high content of liquids is usually processed and the natural gas liquids are separated and sold in the open market. The processed natural gas is then distributed throughout the natural gas pipeline system. In a low price environment it is not always economical to remove the natural gas liquids from the natural gas stream. A number of natural gas processing plants, some of which are located along the border of Saskatchewan and Alberta, are extracting fewer liquids and in some cases temporarily suspending operations due to the low natural gas liquids prices. The result of this is that, at times, the natural gas imported into the province is less processed or not processed at all. Rather, the liquids are sometimes left in the natural gas stream due to the low liquids prices and the cost of processing. Natural gas that has a high composition of natural gas liquids has a higher heat or energy content compared to conventional natural gas and less volume is required to generate an equivalent amount of energy. In Saskatchewan, the energy content or heat value of natural gas delivered to consumers has been generally rising since Saskatchewan became a net importer of natural gas five years ago. This is due to both the higher energy content of natural gas being imported from Alberta, and the fact that natural gas associated with oil production is replacing conventional production within the province.
Methane
Ethane
Propane
Butane
Condensates
Nitrogen Carbon Dioxide Hydrogen Sulphide Helium
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Management’s Discussion & Analysis
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