Market Snapshot: Continuing High Prices in the Maritimes' Distinct Natural Gas Market
Release date: 2014-12-11
Nova Scotia and New Brunswick, along with parts of New England, form a distinct natural gas market. This market responds to regional, rather than continental, supply and demand fundamentals. Due to limited natural gas production in the region, lack of gas storage facilities, and ongoing pipeline bottlenecks in the U.S. northeast, natural gas prices in Nova Scotia and New Brunswick are higher and more volatile than the rest of Canada, particularly during the winter.
Demand increases in the winter due to commercial and residential natural gas heating and natural gas-fired power generation for electric space heating. Industrial demand tends to be more price-sensitive, adjusting depending on the availability and prices of alternative fuel sources such as coal or heavy fuel oil. For the first nine months of 2014, natural gas demand in Nova Scotia and New Brunswick averaged approximately 180 million cubic feet per day.
Figure Sources and Description
Sources: Statistics Canada, NEB calculations
Description: This stacked bar chart shows natural gas consumption in New Brunswick and Nova Scotia from 2008 to the fall of 2014 in the residential, commercial and industrial sectors. Industrial natural gas consumption represents over 90 per cent of consumption over much of the time period. Total consumption is generally higher in the winter months compared to the summer.
For the first nine months of 2014, production from the two offshore fields in the Maritimes, Sable Island and Deep Panuke, averaged approximately 380 million cubic feet per day. This is approximately 150 per cent higher than average production in the first nine months of 2013. The increase is primarily attributed to the commissioning of Deep Panuke, which came online in August 2013. Overall, offshore natural gas production in the Maritimes in 2014 is similar to production in early 2009 when Sable Island was the only supply source. In addition to the two offshore fields in Nova Scotia, a small volume of natural gas is produced onshore in New Brunswick from the McCully gas field. In 2014, McCully production averaged 10 million cubic feet per day.
Figure Source and Description
Description: This stacked cake chart shows Maritimes natural gas supply from 2008 to the fall of 2014. It includes the Deep Panuke and Sable Island offshore gas fields, the McCully onshore gas field and the Canaport LNG import terminal. Production from Sable Island falls steady over the period. Canaport supply begins in mid-2009 and is volatile over the period and very small from April 2014 onward. Deep Panuke production begins in mid-2013 but decreases to zero in October of 2014. McCully production begins in mid-2009 and represents approximately 4 per cent of total production throughout the period.
Regasified liquefied natural gas (LNG) from the Canaport import terminal in New Brunswick is another source of supply in the region. Imports of LNG from global markets have been modest in recent years due to cheaper supplies of natural gas in North America. Between January and November 2014, Canaport deliveries averaged 50 million cubic feet per day. However, during last winter’s high demand, deliveries were as high as 700 million cubic feet per day.
Supplies of natural gas into Nova Scotia and New Brunswick from key North American production basins are limited by pipeline bottlenecks in the U.S. northeast. There are plans to expand existing capacity of the main regional pipeline, Maritimes & Northeast Pipeline U.S., and to de-bottleneck pipeline interconnects, but additional capacity is not targeted to be operational until at least 2016.
There is no pricing hub located in the Maritimes. Instead, natural gas in Nova Scotia and New Brunswick is priced similarly to gas at nearby hubs such as Dracut or Algonquin, both located in Massachusetts. Natural gas in the Maritimes tends to be priced at a premium compared to the pricing at these U.S. hubs.
According to a recent U.S. Energy Information Administration report, the forward price for natural gas at Algonquin for the coming winter (November to March) averaged US$13.70/MMBtu ($14.55/GJ) at the end of October 2014. This is approximately 20 per cent less than last winter’s prices, but significantly higher than previous winters. In comparison, forward natural gas prices for the upcoming winter averaged $4.45/GJ at the Dawn hub in Ontario and $3.62/GJ at the NIT hub in Alberta.
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