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Old 05-23-2009, 06:10 PM
riccky riccky is offline
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Default Alberta gas faces threat

U. S. shale undermines competitiveness
Surging U. S. production of natural gas from unconventional sources is eroding Canada's competitive position and will result in escalating production declines north of the border, an industry observer warns.
But other analysts say it's too early to concede the battle and that the best Canadian producers can compete with the Americans in spite of geographic disadvantages.
Mike Dawson, president of the Calgary-based Canadian Society of Unconventional Gas, said the current near-stall in exploration activity for natural gas in Western Canada is a sample of what is to come if cross-border cost competitiveness doesn't improve.
"The problem is that West-ern Canada gas . . . is being challenged to be competitive relative to other supplies in North America, predominantly the shale gas supply basin from the U. S. Midwest and Southern U. S.," he said Thursday."In a long-term sustainable discussion, we are seeing the decline of natural gas production in Western Canada being driven primarily because of lower gas prices and because of lack of competitiveness in the North American market."
He said the economic down-turn of the past eight months has destroyed about three billion cubic feet per day of North American demand.
Meanwhile, the same amount of supply was added to the market from surging U. S. shale gas plays--creating a six-billion-cubic-feet-per-day bubble that chopped gas prices to below $4 US per million British thermal units from highs last sum-mer of around $13.
Dawson said Canadian gas is farther from the market than new sources of U. S. gas and thus faces higher transportation costs.
It's also seasonal--most exploration has to be done in the winter when the ground is frozen--which results in higher finding and development costs.
Higher royalties associated with the Alberta regime that kicked in Jan. 1 just worsen competitiveness, said Dawson, noting the Western Canadian Sedimentary Basin needs to be recognized as a "mature basin" where most of the easy-to-develop plays have been tapped out.
The non-profit society formed in 2002 is planning a forum for September to explore competitiveness. Speakers will talk about natural gas as an environmentally friendly fossil fuel and discuss liquefying natural gas for export to overseas markets as a means to reduce reliance on the United States.
Analyst Darren Engels of FirstEnergy Capital Corp. who is presenting a study of finding, development and acquisition costs today, said Canadian unconventional gas is a step behind the highly publicized U. S. industry now, but could catch up, depending on many variables, including government incentives.
"For how much we hear about massive land grabs and high IP (initial production) rates and low costs (in the U. S.), I don't necessarily believe it's reflected in the numbers yet," he said.
"They're at the better end of the spectrum, but they're not a heck of a lot ahead of the lower-cost producers in Canada."
Peter Linder, president of DeltaOne Capital Partners Corp., said Canadian natural gas from unconventional sources is competitive with the U. S. -- although overall production may indeed fall.
"In the near term, clearly the conventional natural gas is uneconomic. So clearly the conventional production, which has been declining for a number of years, will continue to decline."
Canadian natural gas production peaked in 2001 and has fallen since. More than 75 per cent is produced in Alberta.
Greg Stringham, vice-president for the Canadian Association
of Petroleum Producers, said a forecast updated late last year shows Canadian gas production levelling off at today's levels in the next five to seven years, mainly due to gains in unconventional gas output.
He agreed that Canada's unconventional resources are less developed than those in the United States, but noted efforts are underway to improve technology and the gathering and transportation infrastructure to bring the industry to an equal footing.
"Once that pipe gets built into those areas . . . then I think it will be back to a much more competitive shale gas on shale gas competition," said Stringham.
In a report this week, Tristone Capital Corp. analyst Chris Theal points out the nine major North American shale gas plays could contain 725 trillion cubic feet of original gas in place with a third of it potentially recoverable.
He also pointed out recovery costs are steadily declining due to technology and operating improvements.
Theal says in the report that shale gas deliverability is expected to grow from eight bcf per day to 25 bcf per day over the next decade, with the most near-term activity to take place in low-cost plays like northeastern British Columbia's Montney and the Haynesville and Marcellus formations in the United States.
The drilling slowdown will reduce production, reset storage capacity and lead to a forecast
$6.75 US per mmBTU in 2010, the report says.
"The weighted shale supply cost is $5.10 per mmBTU, however, efficiency and learning curve are moving best plays to less than $4 per mmBTU," the report says, noting that conventional gas supply costs are greater than $7.50 per mmBTU.
The growing importance of unconventional gas versus conventional gas is illustrated by United States Department of Energy estimates that unconventional sources account for 1,000 tcf of 1,744 tcf of technically recoverable gas in the United States.
Of that 1,000 tcf, 550 tcf is located in the Haynesville, Fayetteville, Marcellus and Woodford shale plays.
The gas rig count peaked at 1,600 last August before falling, but the first rigs to fall idle were vertical rigs, used to drill conventional wells. Horizontal and directional drilling rigs, used for unconventional gas, tailed off through the first quarter of 2009, but the highest return shale plays were still adding rigs, the report notes.
In Canada, the B. C. Montney, featuring over-pressured gas in shale and siltstone, is producing about 300 million cubic feet per day at a supply cost of $4 per thousand cubic feet (roughly equivalent to $4 per mmBTU), the report says.
Development is expanding from the initial Montney core east into Alberta, spurred short term by provincial government drilling incentives, the report says, adding the lack of fiscal stability in the province will likely hurt prospects for growth when the incentives expire in April 2010.
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