Sept. 21, 2011 (Source: Vancouver Sun) B.C.’s shale gas activity is forecast to be one of only two bright spots in Canada’s natural gas industry over the next few years, according to a Conference Board of Canada report released Tuesday.
“The outlook in British Columbia is decidedly more positive, as the development of unconventional natural gas deposits in the Montney and Horn River areas are expected to result in sizable production gains,” the conference board’s Summer 2011 Outlook for the natural gas extraction industry concluded.
“Reserves of unconventional gas exist in several jurisdictions across Canada, but their development remains at the testing stage or mired in public debate and will result in very little commercial production over the next five years.”
Tuesday’s report follows a Pembina Institute report last week that said B.C. regulators need a better grasp of the environmental effects of shale gas drilling in the province. Water used in fracking becomes contaminated and cannot be returned to freshwater systems such as rivers or lakes.
By some estimates, shale and related deep gas reserves in B.C. could be meeting 20 per cent of North American gas demand within a decade.
The conference board report said that Canadian natural gas production is projected to fall over the next five years, mainly because of continuing declines in Alberta where production is forecast to fall by up to 20 per cent between 2010 and 2015.
As a result, industry profits, which totalled more than $8 billion in 2005, will ring in at $744 million in 2011 and not return to pre-recession levels until beyond the medium term.
However, it said that big increases in B.C. – largely due to shale gas production – and a new offshore site in Nova Scotia will help slow the decline in Canadian production.
Conference board economist Todd Crawford said in an interview that there has been a shift in production from Alberta to B.C., “which is expected to do very well over the next 10 to 15 years.”
He said the emergence of shale gas and unconventional gas production in B.C. will help the province’s share of natural gas production rise from 21 per cent in 2010 to about 30 per cent in 2015.
“The industry has really taken advantage of horizontal drilling techniques,” added Crawford. “The new technology has allowed producers to access these unconventional gas sources.”
On the downside, Crawford added, natural gas prices are “incredibly weak now, mainly because of rising supply in the U.S. and weak demand.”
Travis Davies of the Canadian Association of Petroleum Producers agreed that B.C.’s industry is in a good position.
“Alberta is declining because of low prices and mature [reservoirs] not producing at the same rate. In B.C., there are exciting young plays where the industry has spent considerable amount on leases that they now need to get some return on in their investments.”
B.C. producers are also well positioned to take advantage of new markets in Asia, Davies noted.
Canada remains the world’s third-largest producer of natural gas, behind Russia and the U.S, although it now accounts for just 19.3 per cent of North American production – down from more than 25 per cent five years ago, the report said.
Pre-tax profits in the industry totalled $616 million last year – compared to more than $8 billion in 2005, the report added.
It said that with slower U.S. growth expected next year, prices should improve through 2015, but that costs will reemerge as a key issue, “and they will eat up a substantial portion of higher revenues, limiting pre-tax profits to just $6.1 billion in 2015 – 40 per cent lower than their pre-recession peak.”
Meanwhile, Pembina calculated that a single operator with a substantial land position in northeastern B.C. could use anywhere from one billion to 11 billion litres of water annually over the course of a 20-year drilling operating in a strong resource area such as the Horn River Basin.
Water is injected into underground shale deposits at high pressure in order to fracture or “frack” the brittle shale to release the gas trapped in it. Individual wells and regions within shale deposits will require varying volumes of water to facilitate hydraulic fracking.
Over 20 years, a single operator could use between 19 billion and 225 billion litres of water, according to the Pembina report titled Shale Gas: Risks to B.C.’s Water Resources.
Matt Horne, director of B.C. energy solutions for Pembina, said the province needs a comprehensive water use plan that can keep pace with the rapidly expanding size and scope of the shale gas industry.
Some jurisdictions around the world have banned fracking, some have imposed moratoriums in areas close to underground potable water sources, and others which have a long history with the gas industry, such as B.C., have allowed the industry to proceed with its innovations.
Premier Christy Clark announced this month that the province is establishing a public online registry of gas-drilling activity, including locations and details of hydraulic fracking activities at well sites.
The Pembina report says the amount of freshwater used by the oil and gas industry is uncertain and that water use by operators could be lower than what has been approved.
Davies noted that Pembina praised the petroleum producers’ association’s efforts to improve industry transparency following Clark’s announcement.
Vancouver Sun: B.C. activity on upswing as national production expected to fall
