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A Cenovus natural gas well in Alberta (Rene Michaud - Bliss Photographi/EnCana Corporation)
A Cenovus natural gas well in Alberta (Rene Michaud - Bliss Photographi/EnCana Corporation)

Alberta gas production faces rapid decline Add to ...

Gas producers in Western Canada are facing rapidly declining production from conventional fields – and growing doubts that new shale gas reserves will be enough make up the difference.

With North American prices expected to remain depressed for the next several years, Alberta is faced with a twin threat of aging, declining fields and a lack of drilling for gas that would replenish the supply.

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Rising supply of gas in the United States will keep North American gas prices low for the next five years, and lessen U.S. demand for Canadian exports, a study by the Conference Board of Canada said.

“Production in Alberta is expected to decline severely over the next five years, pulling down total Canadian production,” the board wrote. “British Columbia will see a large increase over the same period, but the gain will fall short of offsetting declines in Canada’s main producing province.”

The decline in conventional gas production will mean lower revenues for gas-focused companies and the Alberta government, though the booming oil sector will help cushion the loss. Industry revenues have contracted significantly over the past two years due to lower prices and declining production, but the Conference Board, an independent, not-for-profit research group, forecasts that they will slowly rise over the next five years as steadily rising prices offset the decline in production.

The board expects gas production in Alberta to decline to eight billion cubic feet per day by 2015, from 10 billion last year and 12 billion in 2006. Production in shale-rich British Columbia will rise to four billion cubic feet by 2015, representing 30 per cent of total Canadian production.

The grim Conference Board forecast comes as producers are eager to diversify their markets by adding capacity to export liquefied natural gas to Asia from B.C.’s coast.

A consortium led by U.S.-based Apache Corp. is awaiting a decision from the National Energy Board to export 1.3 billion cubic feet per day of LNG to Asian markets. Royal Dutch Shell PLC is also examining the feasibility of an LNG plant on the West Coast, citing shrinking North American markets for Canadian gas.

Gas-oriented producers in Western Canada have already begun shifting their activity away from conventional fields in Alberta to the shale gas plays in northeastern B.C., as well as to oil and liquids-rich unconventional gas reserves.

Talisman Energy Inc., for example, unveiled its land position in Alberta’s Duvernay shale play in July. It has collected 360,000 acres, and while the company remains committed to natural gas, it hopes the Duvernay will lessen the pain created by the weak market.

“We believe this will prove to be a liquids-rich play, which is obviously an advantage given where gas prices are now,” Phoebe Buckland, a spokesperson for Talisman, said Tuesday. “We’re looking to move capital to liquids-rich plays.”

This does not mean that Talisman is abandoning is original natural gas plans. “We are still investing in gas, although … [strengthening]our position in liquids-rich plays where possible,” she said. The company is also targeting conventional oil assets, which will also help.

Encana Corp., the second-largest natural gas company in North America, has also declared that it is on the hunt for oil and liquids-rich gas to shield itself from low gas prices.

Some analysts are more optimistic about the future of Western Canadian gas than the Conference Board.

Calgary-based Ziff Energy Group expects Canadian production to fall in the next two years but then rebound as unconventional production is required to feed growing consumption in the oil sands, the power sector and other new sources of demand. But all the growth will come from unconventional resources, including tight gas, coal-bed methane and shale.

Gas remains a “real challenge” due to low prices, said Travis Davies, a spokesman for the Canadian Association of Petroleum Producers. But companies are coping by shifting their focus to oil – including conventional oil plays with new drilling techniques – and liquids-rich gas. He said the industry is continuing to increase employment and, in fact, is struggling with labour shortages.

 

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