Energy board predicts rosy future for B.C. gas
Scott Simpson
Vancouver Sun
October 24, 2008
Better technology for difficult production seen as boost for province
Natural gas reserves in British Columbia may be large enough to overcome declining gas production in Alberta in the coming decades, according to the National Energy Board.
Canada's natural gas production has been in slow decline, year over year for most of this decade because conventional gas reserves in the nation's largest fossil fuel reserve, the Western Canadian Sedimentary Basin, are slowly running dry.
Those reserves account for 98 per cent of annual Canadian gas production for domestic and export markets, and they've been central to Alberta's dominance as a gas producer on North American markets.
However, improved technology to extract gas from unconventional shale and "tight" underground formations has opened a lot of eyes to the possibility of increased production from B.C., which has a more complex geology than Alberta.
Gas exploration and drilling companies, notably EnCana, have been methodically taking positions in unconventional areas around Fort Nelson and Dawson Creek for a few years.
But this year, as the potential of the areas became more evident, competition for drilling rights in the Montney region near Dawson Creek and Horn River Basin near Fort Nelson became frantic.
Gas exploration and drilling companies looking for a share of Montney and Horn have this year already boosted B.C. gas lease revenues to a record $2 billion.
Now the NEB has taken stock of that optimism and, notwithstanding the volatility of natural gas prices on North American trading markets, concluded that B.C.'s future as a gas producer may be robust.
"Advances in drilling techniques and technology in recent years are allowing companies to access the shale and tight gas, which was previously difficult to produce," the NEB said in a press release accompanying its Short Term Natural Gas Deliverability 2008-2010 report.
"Although this development is still in the early stages, it has the potential to dramatically alter previous projections for a decline in the Western Canada Sedimentary Basin."
NEB chair Gaetan Caron stated in the release that "in our consultation with producers we heard a great deal of enthusiasm for the resource potential on the western [B.C.] side of the Basin."
B.C. Minister of Energy, Mines and Petroleum Resources Richard Neufeld said the NEB's assertions were bold, but they confirm the province's conviction that it has ample room for growth as a gas producer on the North American market.
"I guess it took the players to come in and spend big dollars in both the Montney and the Horn to get the attention. It bodes very well for British Columbia," Neufeld said in an interview.
He said the volume of drilling activity will depend on market prices for gas, but the money that companies spend to secure a portion of the plays shows that the work will proceed.
Gas is trading at around $8 US per unit on North American markets, and the NEB estimates that's the floor price needed to make drilling in Horn and Montney cost-effective.
Richard Wyman, oil and gas analyst for Canaccord Adams, said Horn and Montney "do represent significant growth potential. There is no doubt about it."
Wyman listed several infrastructure issues that will need to be addressed before development of the areas can begin in earnest, including gas processing facilities, pipeline capacity, pipeline routing, road construction and local community capacity to support increased activity.
"The comments from the NEB are probably accurate and there are moves afoot to remedy some of these constraints that are looming but it's going to take a few years, maybe even five or six, to build all of this up to a point where it resembles what is currently [just] a concept," Wyman said in an interview.
Short Term Natural Gas Deliverability 2008-2010
National Energy Board, October 2008