Canadian unconventional natural gas producers face a host of new challenges, not the least of which is an oversupply of gas in eastern Canada and the U.S., global tax and advisory firm Ernst & Young (E&Y) said Wednesday.
That means western Canadian producers, especially those developing massive shale formations in northeast B.C., should look abroad for their customer base.
“Here in Canada, many perceive that the Utica shale formation northeast of Montreal will not only create huge economic growth in Quebec, but also change the flow of gas in Canada, meaning less demand for western Canadian gas,” said Lance Mortlock, senior manager at E&Y’s Canadian oil and gas practice.
“With this anticipated shift on the horizon, Canadian companies should be on the lookout for long-term customers in markets like Asia where demand is rising. Canada’s ability to export this gas is key to our growth.”
Earlier this month, Business in Vancouver reported that B.C.’s booming shale gas industry had become a victim of its own success (see “Plunging gas prices threaten industry investment” – issue 1114, March 1-7.)
According to a recent Ministry of Energy report, industry investment in the province’s gas sector is expected to top out at $6.3 billion in 2010-11, and then decline 20% to $5 billion in 2011-12.
In fact, the ministry does not expect investment levels to recover until 2013-14 when annual investment in exploration and development is targeted to hit $6.4 billion.
The prediction comes amid a plethora of massive shale gas finds throughout North America, which reduced prices in January and February.
In March, gas prices recovered somewhat, climbing to as high as $4.40 per million BTUs on March 25 versus $3.77 on March 3.
Still, analysts say investors view the Canadian gas sector as a long-term holding.
Earlier this month, Calgary gas giant Encana (TSX:ECA) signed a deal to take a 30% stake in the proposed Kitimat liquefied natural gas terminal (see “Encana buys 30% of Kitimat LNG terminal” – BIV Business Today, March 18).
Although the $3 billion project has been debated for years, the project has seen a lot of movement lately and is considered the key piece of infrastructure B.C. needs to exports gas to Asia.