Shale gas prospects in British Columbia (BC) appear to be the sole "bright spot" on a darkening natural gas landscape projecting a continuing decline in Canada's overall gas production in the years ahead, according to a report recently released by the Conference Board of Canada.
Exploration and production (E&P) in Canada continues moving through "a period of transition," according to the report "Summer Outlook 2011 for the Natural Gas Extraction Industry." Even with BC's shale prospects and projections for modest annual growth in drilling activity over the next five years in Alberta, there won't be enough upward pressure to offset expected declines in existing gas connections in the province.
The overall decline in Canadian gas production will be eased somewhat by what the Conference Board analysis characterized as "large increases" in British Columbia -- largely due to shale gas production -- and a new offshore site in Nova Scotia.
The report looked at the short- and medium-term economic and profitability outlook for Canada's gas extraction industry, highlighting it in reference to supplies in the United States, production in Western Canada and Canada's oilsands production.
"Rising supply south of [the Canadian border keeps North American prices down and lessens U.S. demand for imported Canadian natural gas," the report said, separately calling for the expected five-year decline in Alberta and the boom in British Columbia. Competition with oil (from the oilsands) in turn will result in "rapid cost escalation for the gas industry."
"But rising production in the oilsands will also provide a new and important source of demand for the industry," said Conference Board economist Todd Crawford, who expected BC to continue to do well relative to the shift in energy emphasis away from Alberta over the next 10 to 15 years.
The report finds a lot of positive aspects in BC, centered on the Montney and Horn River shales where "sizable production gains" are expected. Other areas of Canada also have reserves of unconventional gas, but the report characterized them as being at the "testing stage or mired in public debate," and as a result they are not expected to emerge appreciably in the next five years.
Shortly before the Conference Board report a nonprofit dedicated to sustainable energy development in BC, the Pembina Institute, released two reports calling for the BC provincial government to keep a closer eye on the shale gas industry. The documents dealt with "BC Climate Action Objectives" and "BC Water Resources," both of which the institute feels can be adversely impacted by shale gas development without proactive planning and regulatory controls.
Noting that natural gas continues to be in a prolonged transition period, Crawford said production is "projected to fall indefinitely [nationwide in Canada], and barring any unexpected situation that would cause prices to spike, profits are unlikely to return to pre-recession levels until beyond the medium term."
Through quick adaptation the past two years, the gas industry in Canada has maintained profitability, but at a little more than C$600 million last year, compared to C$8 billion in 2005, the report noted. "Even though prices remain weak for the third consecutive year, profits will rise to C$744 million this year."
The report forecast economic recovery in Canada to "take a firmer hold" in 2012 and growth in U.S. gas production to "slow," causing "moderate improvement" in Canadian gas prices through 2015.