Canadian Manufacturing

Low prices are stalling natural gas production and drilling

Current prices do not cover the full costs of developing most natural gas prospects, according to the National Energy Board



CALGARY—Canadian natural gas producers are undertaking minimal natural gas drilling activity as current prices do not cover the full costs of developing most natural gas prospects, according to the National Energy Board (NEB).

The Board’s latest natural gas deliverability energy market assessment—Short Term Natural Gas Deliverability 2013-2015 indicates three key supply and demand drivers are influencing future Canadian natural gas deliverability (the ability to produce natural gas from new and existing wells). Those include:

  • Prices that do not cover the costs of developing most natural gas prospects.
  • Growth in natural gas as a by-product from developing oil and natural gas liquids (NGLs)-rich prospects.
  • Producers not earning sufficient returns to attract additional equity investment with current prices of around $3.00/MMBtu in Western Canada.

This report suggests a mid-range price point would see moderate growth in North American natural gas demand, coupled with declining Canadian natural gas deliverability and slowing U.S. supply growth, gradually reducing excess deliverability in North American natural gas markets.

The NEB projects annual Canadian natural gas prices could be $3.60/GJ by 2015, sustaining drilling for NGL-rich gas and sparking some return to dry gas drilling. Canadian natural gas deliverability would fall to 353 106m3/d (12.5 Bcf/d) by 2015, down from 396 106m3/d (14.0 Bcf/d) in 2012.

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