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Canada Natural Gas Investments Flowing West

British Columbia (BC) over the next 24 years should gain more natural gas investment than any other Canadian province, pushing aside Alberta as Canada's top gas supplier, according to a forecast by the Conference Board of Canada.

Gas industry investments overall are projected to total US$386 billion, most of which would flow to the three westernmost provinces, the Board said in its report, "The Role of Natural Gas in Powering Canada's Economy," which was funded by the Canadian Natural Gas Initiative.

BC is expected to gain the most from gas investments, with about $181 billion (2012 dollars) between 2012 and 2035, more than $5.8 billion a year on average, which puts the province well ahead of the long-time provincial energy powerhouse Alberta.

"British Columbia faces the challenge of developing on two fronts: unconventional shale gas production and infrastructure to support liquefied natural gas [LNG] exports," said the Board's Len Coad, who directs environment, energy and technology policy. "The future of Canada's natural gas industry depends critically on investment in exploration and production.

"Regulatory frameworks for liquefied natural gas projects and for unconventional natural gas will play a key role in whether this investment takes place and the economic benefits are realized."

Natural gas investments were quantified for the report based on projected gas demand within Canada and for LNG exports primarily to Asian markets, as well as the existing pipeline network to U.S. markets. West Coast LNG exports are on the radar for several companies.

"This analysis does not assume that all projects will proceed. If that were to happen, Canada would go from no LNG exports to being the second-largest LNG supplier in the world over a very short period," said the authors. For this report, they assumed that four LNG trains would be constructed in BC, which would total 20 million tons/year of capacity.

More investment is expected to be made in BC, but Alberta "will gain the most in GDP from the investment -- an increase of $153.6 billion increase from 2012 to 2035. British Columbia will gain more than $116 billion in GDP as a result of natural gas investment."

BC investments in natural gas over the next 24 years are expected to create 1.2 million person-years of employment and more than $46 billion total taxes. The tax revenue estimates don't include natural gas royalty payments, which represent the resource owners' share of the value of production.

"In addition to the economic impact from investment, overall production growth is expected to contribute a cumulative $576 billion (2012 dollars) to Canada's economy, supporting another 129,000 jobs per year," the report said. "Through these activities, the industry is expected generate roughly 6.2 million person-years of employment. In other words, the industry is expected to support employment of nearly 260,000 per year over the 24-year forecast horizon."

Sustained success with the unconventional drilling and well completion methods imported from the United States is described in a new geological atlas that the BC Oil and Gas Commission (BCOGC) is circulating to industry as a treasure map to lure investment in the province.

The atlas is an earth sciences and economics portrait of the gassy Montney Shale, which carpets a 10,000-square-mile band of northern BC at varying depths. The subterranean zone is up to 984 feet thick and has been well known to generations of industrial explorers in Alberta as well as BC, as steeped in gas and liquid byproducts but too dense to tap with conventional vertical wells.

The Montney atlas is the provincial treasure map that followed a collaboration to document unconventional resources in BC and Alberta by the BCOGC, the National Energy Board and Alberta's Energy Resources Conservation Board.

Until the first use of horizontal drilling and fracking began in 2005, the total cumulative Montney production by conventional vertical wells was a paltry 25 Bcf, according to the report. As of mid-2012, about 1,100 wells -- all employing unconventional drilling -- increased cumulative BC Montney production 52-fold. The formation's total output in BC was rising by 1.5 Bcf/d as the new generation of horizontal wells produced as much as all of their vertical ancestors about every two weeks.

Montney activity has grown to 41% of total provincial output and become "the single most important gas producing horizon [geological layer] in British Columbia," according to the commission. Thanks to Montney wells, annual BC production of natural gas liquids (NGL) grew in four years by 33% to 7.6 million bbl in 2011 from 900,000 bbl in 2007, said the commission. The 2011 NGL total exceeded BC's oil production from all sources in the province combined.

With planning for the next round of growth in Canadian gas development focused on Asian exports, the Conference Board predicted that the long-term switch in North American energy trade patterns would continue while Canada's role as a pipeline exporter to the United States would shrink.

"Consumers in Eastern Canada are likely to rely more and more on imported U.S. natural gas as shale development continues and pipeline capacity expands," it said.

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