If there was ever a turf war for control of the natural gas market in America, it was over the moment George Mitchell decided to enter the fray.
Perhaps it was fate or just plain bad luck… Either way, Canadian natural gas producers have been scrambling to recover — for several reasons — since 2007. The monumental rise of shale gas in the lower 48 states since that year has taken a heavy toll on Canada’s gas industry.
The reality, however, is that these misfortunes couldn’t have come at a better time for them…
Canada’s Silent but Deadly Gas Panic
Uncle Sam fell in love with Canadian natural gas over two and a half decades ago — and it wasn’t a coincidence that this was the same year U.S. gas consumption started rising.
Back in 1986, the U.S. used slightly more than 16 trillion cubic feet of natural gas. Over the next decade, that annual gas fixation increased 37% to over 22 trillion cubic feet, reaching an all-time high that was set in the early 1970s.
Of course, our friendly neighbors to the north were there to help feed that demand, and the amount of natural gas flowing from Canada into the U.S. started growing rapidly. In 2007, the year shale gas production really started turning heads in the Barnett Shale in Texas, Canada piped more than 4.6 trillion cubic feet of natural gas into the U.S.
What took place over the next few years was a complete 180-degree turn compared to the two decades before…
As the U.S. became awash in gas, you’ll notice a sharp downturn in Canadian gas exports to the U.S. (click chart to enlarge):
The gas glut shale production created helped drag gas prices down into the gutter, which led to a huge problem for Canada.
You see, for conventional Canadian gas wells to stay economical, prices need to be somewhere around $4.64/Mcf.
But what about the horizontal wells that are necessary to extract natural gas from unconventional deposits, like the shale formations that are constantly making front-page news?
Try $5.50/Mcf. That’s why today, only one out of every four drilling rigs in Canada has the courage to drill for natural gas.
(You can’t really blame these guys for going after oil. After all, how many days in a row has the price for crude traded in triple digits?)
Believe it or not, most gas producers breathed a sigh of relief when this happened…
It was six years ago that I first mentioned some of the disturbing issues developing around Canadian natural gas production. When the Canadian Energy Board released a report stating production from new wells was dropping at a rate of 20% per year, few people noticed this rate was nearly double what it had been just ten years earlier. At the time, it was projected that drilling activity would intensify; yet production would still decline.
Add to this the fact that Canada really couldn’t afford to give up more of its future gas supply. (Remember, it’s responsible for heating about 40% of Canadian homes. Anyone who has ever experienced a harsh Canadian winter will understand its importance.)
Still, things get worse for your average Canadian gas producer — because typically, if you fall under this category, there’s a strong chance you’re in Alberta.
This province produces two-thirds of the country’s gas supply.
However, Alberta’s gas production is in a rapid downward spiral, expected to only be pumping out 235,740 cubic meters of natural gas by year-end.
That’s a 40% decrease compared to its output in December 2001.
It appears as if it’s now or never for them to make a break for real gas profits…
Now or Never
Canadian gas may seem like it’s on the fritz. But all is not lost…
That’s because Canadian companies are no longer looking south for business.
No, their gaze has drifted west.
I used to call this the best-kept secret in the Canadian energy industry, and depressed gas prices have kept this opportunity hidden from the media spotlight.
The potential breakout here is startling.
It’s a resource play that makes the hottest shale gas play in the U.S. — the Marcellus — look like a puddle of gas.
As it turns out, our Canadian imports will be falling for another reason…
I’ll tell you all about this opportunity on Friday.
In the meantime, I’ll leave you to ponder this thought: Why would Canadian producers sell natural gas for under $4/Mcf (at a loss, I might add) to the U.S. when they can get more than four times that amount just 900 miles away?
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
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