Resource World Magazine

54 www.resourceworld.com o c t o b e r / n o v e m b e r 2 0 1 5 D espite the resource industry down- turn and the woes besetting the world economy, British Columbia is deter- mined not to lose its position as a major supplier of natural gas. Fueled by the interest in LNG (lique- fied natural gas), the industry in BC is surviving despite current challenges that see gas prices below $2.70. And that isn't surprising, given the 50-year history natu- ral gas operations have in the province, starting with the first find at Clarke Lake in northern BC in 1956 and followed by finds at Yoyo and Sierra early the following decade. BC has traditionally used 16% of the natural gas it produces, while export- ing 41% to the US and 43% elsewhere in Canada – at least before the decline that began in 2014. LNG may give the industry a new lease on life. The Canadian Association of Petroleum Producers (CAPP), in its 2015 Natural Gas Forecast and LNG Report, said global markets accessible to LNG could prevent Canada from slipping into a decade of decline in natural gas production. "LNG is a very real opportunity for Canada, creating growth, jobs and other economic benefits," said Stuart Mueller, CAPP's manager of natural gas transporta- tion and safety. He said several of the 21 projects pro- posed for BC are "very serious", although most have considerable due diligence remaining. Mueller cited as the likely frontrunners a terminal planned by a con- sortium led by Petronas [PTG-MK], and LnG Canada, led by Royal Dutch Shell [RDSA, RDSB-LSE]. Observers are seeing "major hurdles being moved on" though the final numbers and number of projects remain uncertain. "The opportunity (for LNG distribu- tion) is absolutely there," said Mueller. "Canada has the expertise." If LNG doesn't materialize for BC – or if it doesn't live up to projections due to increasing competition for new markets – the industry will see a decrease in pro- duction to a platform of 12 billion cubic feet per day by 2030, a 5 bcf/day swing from the status quo, CAPP predicts. The industry's problems have been building since 2008-09, when fracking and the 'shale gas revolution' unlocked huge new natural gas reserves in the US and Canada. Now, several plays under more active development, such as the Marcellus Basin, are located in the eastern half of the US – close to American Northeast markets traditionally served by Western Canadian gas. That abundance means industry play- ers must compete for traditional markets with new plays. But much less product is being shipped now. "Market demand has caused the slowdown; it's not tied to prices," Mueller said, noting that drilling in BC and else- where is down this year due to economic conditions. "For natural gas in Western Canada it's an issue of market access. The industry continues to have a lot of revenue potential and value to BC and Canada." Companies are shipping "much, much less", he said, and much of the drilling now is in liquids-rich plays factoring into LNG. It isn't likely there will be a resur- gence in industries using more natural gas in Canada, so finding markets in Asia for BC LNG, and in Europe and India for LNG distributed through terminals on Canada's east coast, is the best bet, he added. BC's Ministry of Natural Gas takes a longer view, emphasizing the "dra- matic growth" the industry has seen in the past decade thanks to the emergence of unconventional gas, and technologi- cal breakthroughs such as fracking and horizontal drilling. The ministry says its current focus is to foster growth and diver- sification through LNG exports to Asian markets. Total capital investment by the oil and gas industry was approximately $5.7 billion in 2013 and investments are increasing as LNG prospects grow with the global market demanding new energy sources. To date, the ministry estimates more than $12.5 billion has been invested by industry in BC's LNG opportunity. BC saw 311 new gas wells drilled by the end of July, compared with 392 a year earlier. The rig count in July was 27 of 83 available, a 33% utilization rate, compared with 48 of 77 (62%) in July 2014. Estimates are that BC will drill 559 wells by year's end, slightly above the forecast, driven by confidence that at least some LNG initia- tives will proceed; production is 8% above 2014 at 16.8 billion cubic metres. Progress Energy, for instance, is spend- ing $2 billion on drilling 200 BC wells and associated infrastructure, betting parent British Columbia fifty-year gas sector: a crucial commodity for the future the oil patch report B r u c e L a n t z Stuart Mueller, Canadian Association of Petroleum Producers.

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