Canadian natural gas exports to the United States could post the largest drop in a generation in 2007, an analyst says, as exploration cuts reduce supply and home-grown demand to fuel oil sands output booms.
Martin King, who follows energy commodities at FirstEnergy Capital, a Calgary investment bank, expects exports to fall by up to a billion cubic feet a day in 2007, down about 10 percent from shipments around 10 billion cubic feet a day in 2006. "The supply picture is looking rather negative," King said.
"You have to go back to 1984 to see a (similar) downward trend."
King speculated the cut in exportable gas will come on both the supply and demand side.
On supply, Canada’s energy companies are losing their enthusiasm for drilling natural gas. Costs are high, prices volatile—but lower than they have been—and concentrating on finding new oil to pump has proved more profitable.
Many of the country’s biggest producers have announced big cuts to their gas-exploration programs in 2007. Included in the list are Canadian Natural Resources Ltd. and Devon Energy Corp., which have both put the brakes on spending to find new gas reserves.
Canadian Natural, the country’s No. 2 gas producer, cut its gas program by nearly half to focus on more profitable oil projects. Devon blamed inflation in Western Canada, where it produces nearly a third of its natural gas, for its cutback.
The two aren’t alone. Other firms that have decided to take a pass on big boosts to Canadian gas exploration budgets in 2007 are Petro-Canada, EnCana Corp., and Talisman Energy Inc., although both Talisman and EnCana still have substantial drilling programs.
"Natural gas projects are being moved lower and lower down the priority list," King wrote in a report.
The lack of enthusiasm for gas comes as the gas price outlook remains unfocused. Temperatures have been mild since the hurricanes in the Gulf of Mexico pushed natural gas above $15 per million British thermal units last year.
The 2005 price jump prompted a flurry of drilling, with a record of 23,900 wells expected to be drilled in Canada this year, according to the Petroleum Services Association of Canada.
But the organization expects 2007 activity to slow for the first time since 2002. It forecast a 10 percent drop in activity because of the exploration cutbacks.
But the problem is not just about supply. Canada’s oil sands producers are voracious consumers of natural gas, using it to heat steam to liquefy the tarry bitumen reserves trapped in sand and as part of the process to produce refinery-ready crude from the bitumen.
Oil sands demand for gas has climbed from under 400 million cubic feet a day a decade ago to about a billion cubic feet daily in 2006. And with more than C$100 billion ($86 billion) in projects either planned or being built to tap the massive oil sands resource, demand will rise further.
King estimates that demand from oil sand operators has climbed as much as 300 million cubic feet a day since the summer and will rise again next year, cutting into supplies that would otherwise be available for export.
Most in Western Canada agree that supplies will be tight in coming years but not everyone sees a big drop. TransCanada Corp., whose pipelines carry most of the Canadian gas exports to the United States, does not see much change. "We see things generally flat to slightly declining…over the next five years,” Hal Kvisle, TransCanada’s chief executive, said on a conference call recently.
"But it’s not a significant amount."
Carol Crowfoot, president of GLJ Publications, thinks most of the budget cutbacks will be in programs for shallow gas wells programs, which are fast to drill but quickly deplete. "Overall production won’t be severely affected by that," she said.
"We’re still pretty bullish on the supply side."
Etiquetas: Manuel Torres Laveaga
