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Gas drilling drops to 23-year low in B.C.’s resource-rich northeast

Shale Gas

Natural gas drilling in northeastern British Columbia has fallen to a 23-year low as gas producers continue to navigate a complicated market still dogged by a supply glut in the United States and lack of outlets outside of North America for the fuel.

At the end of October, producers had punched just 267 new wells in the region, according to figures from the B.C. Oil & Gas Commission, down 40 per cent from the 450 new wells drilled over the same period a year ago — and a level not seen since 1993.

“We are oversupplied in North America so you’re not going to see prices kick up,” said Dave Tulk, an energy-sector consultant and principal with Gas Processing Management Inc.

Tulk’s firm doesn’t do short-term forecasts, but in examining the longer-term trends, North America’s natural gas storage facilities are “fairly full,” and nothing has happened to budge the fundamental shift in the market that has seen Western Canada’s biggest market, the U.S. Midwest, become its biggest competitor in the last five years.

And while production from B.C. and Alberta has remained relatively flat, U.S. producers in regions such as the Marcellus/Utica shale region, which encompasses New York, Pennsylvania and Ohio, continue to expand production.

“That doesn’t mean you won’t see a price spike for a month or two in the winter, but we’re certainly not expecting any increase in prices, because there’s just lots of gas out there,” Tulk said.

Natural gas prices did experience a lift over the summer, in a relative sense, rising to a high in mid-October of $3.64 per million US British thermal units (BTUs) on the key New York Mercantile Exchange (NYMEX) measure of the commodity, from $1.64 US per BTU in early March.

Generally speaking, however, Tulk said gas producers aren’t earning enough of a return on the wells they are drilling to justify drilling a lot of new wells.

The shorter-term market dynamics also continue to put a hole in provincial revenues from its resource.

Royalties from natural gas plummeted to just $2 million in the first quarter of the province’s fiscal year, ending June 30, compared with $32 million estimated in its 2016-17 budget, and down from $51 million in the same quarter a year ago, reflecting those dismally low prices earlier in the year.

What would help the Canadian industry, Tulk said, is a decision from one of the major proponents proposing liquefied natural gas exports from B.C.’s north coast.

Woodfibre LNG Ltd., backed by the private Singapore firm Pacific Oil & Gas Ltd., on Nov. 4 announced its board had approved finances for its $1.6 billion LNG plant near Squamish, which Premier Christy Clark heralded as B.C.’s LNG industry “finally becoming a reality.”

Tulk, however, said that while the Woodfibre LNG decision moves the industry in the proper direction, its proposed plant will take up relatively little of the potential production from B.C.’s huge reserves in northeast B.C.

Earlier this year, the Shell-backed LNG Canada proposal for a plant at Kitimat delayed its final investment decision without stating a new deadline.

And the Petronas-backed Pacific NorthWest LNG proposal for Prince Rupert, which received federal environmental approval in October and whose principals were aiming for a final investment decision by the end of the year, now have to re-price elements of their design because of the delay, according to Rich Coleman, the minister for natural gas development.

That will push their decision into 2017 and possibly not before the next provincial election in May, Coleman said, though he remains optimistic.

“I met with them in Malaysia (in October), with their senior managers, and they’re still very positive about the project,” Coleman said. “But now they know they’ve got their (federal environmental) permit.”

Gas drilling drops to 23-year low in B.C.'s resource-rich northeast

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Posted by on 8:46 am. Filed under BC Economy, Chetwynd, Dawson Creek, Economic Development, Featured, Fort Nelson, Fort St John, Hudson Hope, Liquified Natural Gas, North East, Oil & Gas. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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