Higher average natural gas prices in 2010 will more than offset falling production for Canada’s natural gas producers, according to The Conference Board of Canada’s latest report.

The report, “Canadian Industrial Outlook: Canada’s Gas Extraction Industry — Winter 2010,” is an outlook for the next five years. It was issued by economist Todd Crawford on Monday.

Prospects for near-term price increases are limited because of high inventory levels, Crawford noted. Gas prices in 2010 are expected to average C$5.44/Mcf, up 36% from their low in 2009 but down from the 2008 average.

Canada’s gas prices have “nearly doubled” in less than six months, but “drilling activity remains sluggish as Canada continues to ride out the remaining effects of the recession,” he said.

“Moderate prices will keep natural gas drilling activity weak this year, so production is expected to decline by 2%. Industry production will continue to remain weak throughout the medium term as the initial productivity of wells declines, posing further challenges for the industry.”

After falling almost 65% in 2009, pre-tax profits in Canada’s gas production sector are forecast to bounce back near 2008 levels, reaching close to C$5.9 billion in 2010.

The forecast was completed before the Alberta government issued its competitiveness review earlier this month (see Daily GPI, March 15), but changes to Alberta’s royalty framework “are expected to have little effect on this year’s forecast,” said the board. “The reduction in royalties proposed by the Alberta government offers some upside potential to the forecast starting in 2011.”

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