Canada and the U.S. market for natural gas

The fall of natural gas spot prices in the USA in 1991 was not due to weak demand, but to lower expectations of an end to the surplus of deliverability. Producers are not expecting a tighter gas market and some seem more willing to raise production in order to draw down their reserves sooner. Two developments have helped undermine producer expectations. The first is the removal of barriers to Canadian export of natural gas to the USA, which combined with lower costs for producing gas in Canada has led to a number of proposals for pipeline projects to bring additional Canadian gas to the US market. By 1995, Canadian gas exports to the USA could reach 2-2.5 trillion ft3/y. Increased Canadian exports will supply three basic US markets: the northeast, upper midwest, and California. Canadian reserves are more than enough to supply all the projected increase in US demand for natural gas during the 1990s. The second development is that the US government has given a substantial subsidy to some US producers in the form of a tax credit for certain high-cost sources of natural gas, such as tight sands gas and coalbed methane. This has led to intense exploration and well drilling activity, and by summer 1991, coalbed methane accounted for 2.4% of US production of dry gas. Limitations on production of coalbed methane from the Rocky Mountain region are imposed by inadequate pipeline capacity, and new pipelines from this region to California are in the works. This would introduce more competition for Canadian gas in the California market. 10 figs., 1 tab