Canadian gas shipments to the US will continue to decline for the next few years, leading to intense competition for eastern US markets, industry officials said Tuesday at GasMart in Chicago.

David Slater, managing director of Eastern marketing for Nexen, said the decline in Canadian imports is mostly affecting TransCanada PipeLines. "It is changing the dynamics for all the markets that are currently being served by TransCanada," he said. "There will be more intense pipe-to-pipe competition and basin-on-basin competition for Eastern markets."

Slater predicted that the contracted capacity for TransCanada exports to the US will decline from about 1.75 Bcf/d to less than 500,000 Mcf/d by April 2011. As a result, other pipelines and basins - including the Marcellus Shale in Appalachia - will be competing for the markets traditionally served by TransCanada, primarily in the US Northeast, he said.

William Hussey, senior vice president for origination at ConocoPhillips, agreed, noting that as Canadian gas receipts fall, supply from other regions that serve the Northeast are increasing, including the Rockies and the Marcellus.

The drop in Canadian gas imports has several causes, including a slowdown in production and an uptick in demand within Canada - mainly from the Alberta oil sands, which use large amounts of gas in the extraction process.

But Slater said the trend has nearly bottomed out and that western Canadian shale gas plays, such as the Horn River and Montney, have major potential.

Production from the Horn River could increase to 800,000 Mcf/d by 2013 and "early signs indicate lower declines than other shale plays, leading to superior economics," he said. He added that the breakeven costs for Horn River projects were approaching $4/Mcf and the breakeven costs for Montney projects were around $4 to $5/Mcf.

Porter Bennett, president and CEO of Bentek Energy, agreed that lower supply from Canada will lead to stronger competition for markets in the Northeast. He said Canadian imports to the Northeast are down 815,000 Mcf/d since February 1, adding that the rate of Canadian imports overall has not been this low since the 1980s.

Bennett said gas from the Marcellus Shale is already displacing gas from other basins, mainly the Rockies. "The Marcellus is going to continue to grow. I don’t think there is anything that is going to slow that down," he said in a segment of his presentation dubbed "East crushes West."

In addition, Bennett predicted that US gas prices would fluctuate between $3.50 and $5.50/Mcf, with periods below $3.50 /Mcf unless demand grows significantly relative to supply. "Producers will once again shut in production as prices fall toward $3.50," he said.

However, one factor remains uncertain. Bennett said the shift towards liquidsrich gas, which is currently driving many drilling decisions in North America, could have a major impact on the market. "Whether this shift will drive gas prices up is unclear," he said.