Canadian Natural Gas Enters 'New Reality' - NEB Report

It's a new reality for Canadian natural gas with new plays, new technology, and shifts in gas type creating both challenges and opportunities for those working in the sector says a recent report from the National Energy Board.

In the report, Short Term Canadian Natural Gas Deliverability 2010-2012, the NEB sees a shift from Alberta to British Columbia in natural gas production. This is due to an increase in the production of tight and unconventional gas which has grown significantly in the northeast B.C. areas of Horn River and Montney. Over 210 wells could be drilled in Montney and 70 wells in Horn River in 2010 alone. Alberta's gas production is expected to decline over the next few years from 12.7 to 8.5 billion cubic feet per day (Bcf/d). Meanwhile, B.C. will see an increase from 2.7 to 3.7 Bcf/d.

Although Canada's drilling activity will increase over the projected time period, overall natural gas production is expected to decline through 2012. This is due to lower drilling activity in recent years compared with earlier in the last decade. In 2012, deliverability could be 13 Bcf/d down from 15.1 Bcf/d in 2009.

"Natural gas is shifting not only in location but also in type which can translate into opportunities for many in the industry," says NEB chair Gaétan Caron. "At the same time, Canadians do not need to worry -- there is more than enough supply to meet all our needs."

Capital spending on natural gas projects will stabilize and then increase over the projected time period. Drilling days will replace number of wells as the new labour indicator in the sector. These days will increase about 11 per cent from 45,659 days in 2010 to 50,512 days in 2012. Extracting the tight gas and unconventional gas takes more time to drill so there are more drilling days on each well.

The increase in oil prices is also presenting challenges to natural gas producers. Drilling for oil is more profitable than gas right now. Some of the new technology that was designed to extract shale gas is being used for oil extraction in certain areas of Alberta and Saskatchewan. Capital investment in oil production is drawing some investment away from gas.