Canada

Canadian natural gas production started to recover in 2013 and since then has been increasing at an average growth rate of 4% per year. This has been mainly driven by the development of tight and shale gas production, the share of which grew from 30% in 2007 to almost two-thirds in recent years.

Most of these resources are located in Alberta and British Columbia, which together accounted for almost all cumulative production growth since 2013 (Figure 2.7). This tight and shale gas development comes mainly from two plays: the Montney play, which extends from British Columbia into Alberta and currently accounts for about one-third of Canadian production, and the liquids-rich Duvernay shale play in Alberta.

Figure 2.7 Natural gas production growth by Canadian province, 2011–18

Source: NEB (2019), “Marketable natural gas production in Canada”, www.neb-one.gc.ca/nrg/sttstc/ntrlgs/stt/mrktblntrlgsprdctn- eng.html.

Alberta and British Columbia have been leading the Canadian natural gas renaissance since 2013, supported by their vast reserves of tight and shale gas.

However, the current low price environment could hinder any substantial investment in Canadian upstream projects without the prospect of having access to more lucrative export markets. In 2018 natural gas prices averaged USD 1.2 MBtu in Alberta’s AECO trading hub, reaching their lowest level since at least the beginning of the current century. In January 2019 it was reported that some producers have shut in natural gas wells because of low prices (KallanishEnergy, 2019).

The development of the Shell-led LNG Canada export project, which took FID in October 2018, will bring online some 14 million tonnes per annum (Mtpa) of liquefaction capacity by 2025. Feed gas for the liquefaction plant will be supplied from the respective upstream assets of the project companies, as well as from procurement on the open market. Other potential LNG projects on the Canadian and US west coast could offer additional export outlets in the medium term.

However, these projects, if sanctioned, would begin commercial operations after 2024 and thus their impact on Canadian production would extend beyond the scope of this forecast. Further

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developments, mainly from Montney, Duvernay and the Alberta Deep Basin, counterbalance the depletion of conventional production from other parts of the West Canadian Sedimentary Basin.

Mexico

Mexico’s domestic natural gas production reached a peak in 2010 (Figure 2.8) and then started to decline at an average annual rate of 2.2% until 2018. In 2018 gross production reached 49.6 bcm, with 78.5% in the form of associated gas. Crude oil production has also been declining, at an average annual rate of 4% since 2003. Of the associated gas, 75% comes from offshore regions, 20% from the Southern onshore region and 5% from the Northern region. During the first quarter of 2019 production decreased by 3% y-o-y, with associated gas volumes remaining flat and an 11.7% decrease in non-associated gas.

Figure 2.8 Gross natural gas and crude oil production, Mexico, 2002–18

Sources: SIE (2019), Estadistícas Energéticas Nacionales [National Energy Statistics], http://sie.energia.gob.mx/bdiController.do?action=cuadro&subAction=applyOptions; PEMEX (2019), Estadísticas petroleras febrero de 2019 [Oil statistics for February 2019], www.pemex.com/ri/Publicaciones/Paginas/IndicadoresPetroleros.aspx.

Mexico’s natural gas production decreased by 4% in 2018, driven by the falling associated production from oil fields.

Domestic oil production is expected to fall until 2020 and then stabilise in the medium term (IEA, 2019a). The new government increased PEMEX’s upstream budget by 24.5% in 2019 to reach MXN 25 billion (Mexican peso, or USD 1.3 billion),3 while the country shifts its focus to short-cycle shallow-water and onshore projects. Although this shift and higher budget could provide some stimulus, the growth is not expected to be enough to exceed the decrease from mature fields. Associated gas production is expected to follow a similar trend. In December 2018 the new Mexican administration declared a three-year suspension of new oil and gas auctions, cancelling de facto the February 2019 round that included 37 conventional and 9 shale blocks (Mexican Government, 2018; Financial Times, 2018; Reuters,2018a).

3 Using the average 2018 rate of USD 1 = MXN 19.22.

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