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Nexen's 18-well pad at their Dilly Creek shale gas facilities located in the Horn River Region of northeastern BC. Horn River lies next to Liard Basin.
Nexen's 18-well pad at their Dilly Creek shale gas facilities located in the Horn River Region of northeastern BC. Horn River lies next to Liard Basin.

Remote Canadian gas play faces long odds amid continental glut Add to ...

It is Canada’s second-biggest trove of natural gas – and nobody wants it.

A new study has identified an immense shale gas resource straddling the boundaries between the Northwest Territories, Yukon and British Columbia, reviving hope among northern leaders that international energy companies will resume exploration in the remote area despite sizable costs and nagging infrastructure constraints.

The Liard shale gas play could ultimately contain 219 trillion cubic feet of marketable natural gas, according to the research conducted by the National Energy Board, B.C.’s provincial energy regulator and the geological surveys of the Northwest Territories and Yukon. The Northwest Territories portion of the zone is an estimated 44 trillion cubic feet.

But prospects for developing the region are grim, highlighting the competitive challenges facing the Canadian energy industry as a whole as it seeks new markets beyond the United States.

It shows how delays to large export proposals for B.C.’s northern coast threaten to bottle up uneconomic supplies in the country’s remotest corners, pushing investment to cheaper U.S. deposits that have upended Canada’s traditional export market.

“I fully believe there’s a lot of gas up there, it’s just so far from market,” said Martin King, an analyst at FirstEnergy Capital Corp. in Calgary.

“That’s the problem that Alberta and B.C. gas has in general, and has had for decades. There’s so much gas in the U.S., so cheap, so close to market, developing the Liard for the medium term doesn’t really seem like a reasonable thing to do.”

Northwest Territories Premier Bob McLeod on Wednesday touted the new assessment as “one of the most significant petroleum finds in the North in many years” – even as he acknowledged that weak energy prices have exacerbated the stark reality of resource development in that area.

In recent years, companies such as Husky Energy Inc. and ConocoPhillips Co. made multimillion-dollar work commitments to explore the Canol shale, an oil-rich formation in central Mackenzie Valley. Now much of the prospecting is on hold, as companies retrench to cope with the collapse in oil prices.

Prospects in the Beaufort Sea have also dimmed. Imperial Oil Ltd. last year suspended plans with BP PLC and Exxon Mobil Corp. to drill an exploration well in the icy waters, saying it needed more time to study the region’s harsh conditions.

That followed a similar move by rival Chevron Corp., which put its Arctic exploration program on hold in late 2014, citing the sharp drop in oil prices.

“It’s a high-cost environment, and it’s usually the first place that’s affected when prices go down,” Mr. McLeod told reporters at an Arctic energy summit in Calgary.

The Liard shale zone’s estimated resource potential puts it in league with the much bigger Montney play, which straddles the B.C.-Alberta border to the southeast and is estimated to hold 449 trillion cubic feet of natural gas. The Montney has attracted billions of dollars in investment tied to B.C.’s fledgling liquefied natural gas industry.

However, the upstart sector faces mounting challenges from regulatory delays and a global glut that has suppressed prices for the super-cooled fuel.

Earlier this year, Royal Dutch Shell PLC said it would delay by nine months a final investment decision on its LNG Canada project. None of the 20 export proposals in the province has received final approval from their backers.

Mr. King estimated gas prices would need to spike above $4 (U.S.) per million British thermal units before producers would invest in the Liard. On Wednesday, U.S. gas prices settled at $1.86 per MMBtu.

Nonetheless, Mr. McLeod said he is optimistic the new resource assessment will encourage investment in the region as energy prices recover. A legacy of exploration in the 1960s and 1970s means there is some infrastructure already in place, easing the burden for companies eyeing new opportunities, he said.

“It’s not much of a stretch to hook up to the B.C. gas distribution system,” he said. “The main requirement would be for somebody to come in and do some drilling.”

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