Gas Demand For Oil Sands to Expand, But Price Impact Less Clear

Friday, September 16, 2011

An expected doubling in gas demand related to oil sands development in western Canada in the next five years may be a major lifeline for the region in an otherwise weak price environment, but analysts say infrastructure uncertainty and competing US supplies could crush any chances for much upswing.

Going forward, Platts unit Bentek Energy estimates gas demand related to oil sands development to reach nearly 2 Bcf/d over the next five years. Canada-based consultant group Ziff Energy estimates gas demand to hit 3 Bcf/d by 2020, while Navigant Consulting projects gas demand to surge to some 6 Bcf/d by 2035.

Bentek analyst Rick Margolin also said current prices indicate oil sands demand is already being reflected in the market, as AECO prices are at the strongest levels for this time of year since 2008, when benchmark Henry Hub prices were much higher.

"Over the past 30 days, basis has averaged minus 29 cents[/MMBtu] versus the prior three-year average of minus 85 cents[/MMBtu]," Margolin said. "This occurs despite significant losses of exports and fairly healthy storage injection rates. If you look at year-over-year demand and normalize for weather, you can see Alberta demand is progressively stronger, and, obviously, oil sands consumption of gas plays a large role in that."
And progressively is just how the analysts described the rise in demand taking place.

"For the most part, this should be a fairly linear growth trend," Margolin said, noting, however, that Bentek expects to see a slight ramp-up in demand in 2014 as a group of in situ, or steam extraction, projects are slated to come online in that timeframe and bitumen upgrading capacity gets maxed out, limiting potential growth for mined oil sands.

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