For anyone covering the energy industry, it is often wise to take most production forecasts with a healthy dose of skepticism. The Marcellus shale gas production growth has turned out to be an exception to this rule. This 104,000-square-mile play, which covers parts of New York, Pennsylvania, Ohio and West Virginia, has been an overwhelming success, producing 14 billion cubic feet per day (bcf/d). Back in 2007, the Marcellus was only producing a paltry 1.2 bcf/d.

This newfound supply is shaking up markets and squeezing out some longstanding natural gas suppliers, particularly Alberta. Eastern Canada has traditionally received the majority of its natural gas from Alberta and the Western Canadian Sedimentary Basin. Since the late 1950s, Alberta’s prolific fields have had a competitive advantage in sending natural gas east to the densely populated and energy hungry provinces of Ontario and Quebec. Many analysts believe that this market advantage is over. Enbridge reports that it is now sending roughly 400,000 mcf/d of Marcellus gas to Eastern Canada. TransCanada is also sending Marcellus gas to eastern Canada through their Canadian Mainline. The Alberta Energy Regulator notes that mainline shipments from the Alberta-Saskatchewan border to Ontario have dropped by four bcf/d since 2006.

Another reason why Marcellus gas has been able to displace Alberta gas is the growth in oil sands production. The fastest growing form of production within the oil sands is the In Situ process. This process requires large amounts of natural gas. Today, about one million barrels of oil are produced by this method, but the Canadian Association of Petroleum Producers (CAPP) predicts that In Situ production will rise to two million barrels per day by 2020.

The result of these two market forces has been favorable to Marcellus producers seeking new markets. Eastern Canada also has a resource that is lacking in other markets: Pipeline capacity. The northeastern United States, with a population of roughly 57 million, has a large demand for natural gas, but very limited pipeline capacity. Existing pipeline infrastructure failed to keep up with demand over the past winter. In January at the Algonquin Citygate trading point in Massachusetts, prices rose from normal levels of $3-$6/MMBtu during uncongested periods to $38.09/MMBtu during peak demand.

Looking forward, it seems Marcellus gas will continue to grow in Eastern Canada. Spectra Energy Corp. has proposed the Nexus Gas Transmission, a 400-kilometer, $1.5 billion pipeline link that will move natural gas sourced from the Marcellus and Utica north to the Ontario market. Enbridge is also planning to start construction at the end of the year on the $680 million Greater Toronto Area pipeline, with a capacity of 800,000 million cubic feet per day (mcf/d), of which 200,000 mcf/d will be sourced from the Marcellus. As Marcellus gas production is expected to reach 20 bcf/d by 2020, producers will continue to be aggressive in accessing new markets.