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One slice of global gas market just got bigger for U.S. drillers

🕐 2 min read

TransCanada Corp.’s decision this week to shelve plans for lower tolls on its gas pipeline to eastern Canada means less supply will head there from the country’s western reservoirs. That opens the door for U.S. explorers like Antero Resources Corp. and Rice Energy Inc. to edge out Canadian competitors and ship more gas north of the border.

Canada is just one of many new frontiers for the shale producers propelling the U.S. into the ranks of the world’s top gas suppliers. Less than a decade after U.S. gas imports rose to a record, Citigroup data show the country has become a net exporter of the fuel as cargoes head from the Gulf Coast on tankers to ports across the globe.

“This makes it a lot easier for U.S. producers, knowing their Canadian counterparts aren’t going to compete,” Jihad Traya, a natural gas consultant for Solomon Associates in Calgary, said by phone Wednesday. Canadian drillers are “getting shut out of a market they might never get back.”

Drillers in Pennsylvania’s Marcellus basin, the biggest U.S. gas play, are poised to expand their reach in Canada’s population centers. Antero, Rice and Gulfport Energy Corp., which ships supplies from the basin to Midwest markets, stand to benefit the most from TransCanada’s move, Evercore ISI analysts Timm Schneider and Stephen Richardson said in a note to clients dated Wednesday.

TransCanada halted plans to lower rates on its mainline because there wasn’t enough interest from Western Canadian producers, the company said Tuesday. Those drillers now stand to lose even more market share to U.S. competitors, Martin King, an analyst at GMP FirstEnergy in Calgary, said by phone Wednesday.

“More U.S. gas is going to be feeding into southern Canada,” King said.

The decision raises the odds that the proposed Nexus pipeline, developed by Spectra Energy Corp. and DTE Energy Co., or the Rover project led by Energy Transfer Partners LP, will allow Marcellus gas to displace Canadian supplies, King said.

Gas for delivery in Alberta traded about 50 cents below the U.S. benchmark Henry Hub price Wednesday. Canadian explorers Pine Cliff Energy Ltd. and Paramount Resources may be hit hardest if that gap widens, while Seven Generations Energy may be shielded by its hedging program and capacity on the Alliance pipeline to the Midwest, Juan Jarrah, an analyst at TD Securities, said in a note to clients Thursday.

While some western Canadian producers are banking on a better pipeline deal from TransCanada, that offer may never come, Traya said.

“The industry in western Canada is cutting off its nose to spite its face,” he said.

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