Canada’s natural gas industry is losing its appeal as it falls under the shadow of the growing U.S. market, according to a new report put out by the Conference Board of Canada.
While the energy market is typically referred to as the oil and gas sector, north of the border, the importance of gas is waning. In the U.S., the tables are turned and new shale gas discoveries have made drilling for gas a hot sector.
The stats speak for themselves. Canada now accounts for only accounts 19 per cent of North American natural gas production, down from 25 per cent five years ago. Canada also used to account for about 80 per cent of total U.S. gas import demand, but that number is falling because the U.S. can supply itself.
And there are fears we will become even less relevant because Alberta’s production is expected to fall by up to 20 per cent between 2010 and 2015, the Conference Board estimates. While emerging B.C. production in the Montney Foundation and the Horn River Basin are expected to help offset this decline, they can only partially help.
The industry's economics are ugly. Average profit margins have plummeted from 10 per cent and 13 per cent in 2007 and 2008, down to 1.3 per cent and 1.8 per cent in 2009 and 2010. Canadian margins are also expected to stay tight in the near future because natural gas producers here have to compete with the oil sands for labour and machinery. That sends costs skyrocketing.
Because the U.S. is dwarfing Canada’s production, there have been calls from people in the industry to explore other options. Over the weekend, Shell Canada president Lorraine Mitchelmore told the Globe and Mail that Western Canada's shale gas boom will be short-lived without an urgent push to access Asian markets.
"In Asia, they are looking to diversify their supply, but we have a very short window," Ms. Mitchelmore said in a telephone interview with Globe report Shawn McCarthy from St. John's, where she addressed the Canadian Chamber of Commerce.
"Otherwise, we risk becoming a very, very small market."