U.S., Canada natgas output could hit growing pains in 2023

NEW YORK/CALGARY, Dec 21 (Reuters) – Natural gas production in the US and Canada is expected to hit new records in 2023, but growth could slow due to weaker demand, pipeline shortages and a lack of new liquefied natural gas exports ( LNG) be slow plants.

Gas demand rose sharply around the world after Russia cut off Europe’s primary supply, and the United States and Canada are expected to supply substantial export demand, supported by high prices, in the coming years. The two countries combined produced a record 116 billion cubic feet per day (bcfd) in 2022.

The United States has emerged as one of Europe’s most important sources of gas and provides essential energy security to Ukraine after the invasion of Moscow.

Growth next year could be slower than in recent years. Major producing fields in both countries are hampered by a lack of pipelines to transport gas to key markets, including export terminals in the US Gulf. Canada is in the midst of building a major terminal to export LNG, but it’s still two years away from completion.

“It’s not production that can’t keep up, it’s just infrastructure limitations,” said Alan Armstrong, chief executive officer of Williams Cos (WMB.N), one of the largest US pipeline companies. “We’re going through a phase here where production will be somewhat limited.”

Much of the US and Canadian gas production that year came from gas associated with oil production in places like the Permian Mountains of west Texas and eastern New Mexico.

BOTTLENECKS LIMIT THE OUTPUT

According to US energy data, US gas production is projected to increase to 100.4 bcfd in 2023, up 2% from 2022 levels. Canadian gas production is on track to hit a record 18 bcfd in 2022 and 19 bcfd in 2023, according to energy consultancy Rystad Energy.

Production at Haynesville in Arkansas, Louisiana and Texas and the Permian has grown more than 20% annually for the past five years and is projected to increase about 10% through 2022, according to federal projections.

But further growth depends on building more pipelines to keep those basins from being constrained like Appalachia, the largest US shale gas region in Pennsylvania, Ohio and West Virginia.

Pipelines are also constrained in Canada due to rapid production growth, most notably TC Energy Corp’s (TRP.TO) NGTL pipeline system, which transports gas in and out of western Canada.

In August, gas prices in Alberta briefly turned negative due to shortages related to NGTL maintenance. TC Energy is expanding the system to increase flows.

GROWING LNG EXPORT DEMAND

From 2017 to 2021, U.S. LNG exports grew at an average annual rate of 96%, but that pace is expected to slow with no new U.S. terminals scheduled to open in 2023.

US LNG exports are expected to reach 10.6 bcfd in 2022 and 12.3 bcfd in 2023, according to federal estimates. Exports could increase in 2023 once Freeport LNG’s facility in Texas restarts. It has been closed for several months since a fire in June. At least two new US LNG export plants are expected to come online in 2024.

“Associated gas growth will result in an oversupply of gas over the next year as we don’t see the same demand growth until new LNG export facilities come online in 2025-2030,” said Rob Wilson, vice president of analytics at energy research firm East Daley.

If Canadian production ramps up in anticipation of future deliveries from the Shell-led (SHEL.L) LNG Canada project beginning in 2025, it could weigh on prices, Wood Mackenzie analyst Dulles Wang said.

Analysts expect gas prices at the US Henry Hub benchmark in Louisiana to average $5.19 per million British thermal units (mmBtu) in 2023, down from the current $5.39.