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Undated file photo showing an Australia LNG ship sailing off the coast of Western Australia. Australian Prime Minister John Howard announced on August 8, 2002 a deal for Australia's LNG, the marketing arm for the North West Shelf gas joint venture, to supply liquefied natural gas to China's first LNG terminal in the southern province of Guangdong for the next 25 years. The deal is worth US$11-14 billion dollars, Australia's largest single export deal. REUTERS/Handout

HO/REUTERS

As the government of British Columbia trumpets natural gas export plans and the bounty of economic growth they could bring, the province faces a very different immediate reality: drilling in the province is sharply down.

Much of B.C.'s gas ambitions are rooted in the Montney and Horn River areas, two plays that hold tremendous volumes of gas. With those two, plus several others, B.C. now claims gas reserves that are larger than Alberta – and B.C. believes its gas output could one day exceed Alberta's.

But the West Coast province is also at the "end of the pipe," as industry calls it, and is facing a substantial slowdown in activity amid gas prices that continue to be low. In the first 10 months of 2012, the number of wells drilled in the Montney and Horn River fell more than 30 per cent compared to the same period in 2011, to 260. The number of wells authorized in that period is down nearly 40 per cent, to 424, according to figures provided by the B.C. Oil and Gas Commission.

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The shift comes amid a broader slowdown in gas drilling; the New York Times recently documented the remarkable shift in gas drilling fortunes south of the border, amid prices that, while substantially up from earlier lows, remain stubbornly low.

In recent years, sales of gas-rich land in B.C. have become a major source of provincial revenues. But that money has, in short order, dried up. B.C. now faces a widening provincial deficit amid the worst land-sales year since 1998.

The decline in B.C. drilling also highlights how tightly the province's energy future is tied to LNG export plans. Without access to potentially lucrative overseas markets – where buyers in Japan, South Korea and China are willing to pay more for gas than North American buyers today – industry, and the province, face a future where B.C. gas profits are tough to come by.

Talisman Energy Inc. chief executive Hal Kvisle, for example, said Tuesday that "we see a reduction in capital investment in North America in the face of weak natural gas prices."

And those prices may take a long time to rebound.

"It would be a great turn of events if suddenly demand for gas went way up and drilling for gas went way down and the price restored to $6 or $8," Mr. Kvisle said. He added: "But it reminds me of 1990, when we saw a gas-price turnaround just around the corner and it took eight or nine years. ... So we've got to be pretty cautious."

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