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Canadian Insight

Future for Canadian natural gas producers getting brighter

Natural gas prices have simply stunk during the past decade but are now recovering and it is apparent that natural gas outlook is looking promising. Oversupplies of natural gas inventories have dropped below the five year average and global changes are occurring. Natural gas demand is rising. Relying on continental demand will no longer be a factor. The next decade looks very favorable. Global markets are here and demand is about to burst open.

During the past decade, significant discoveries of shale gas were made. In the US, these discoveries developed quicker than the demand was able to sustain. Natural gas prices plummeted to record lows in the past several years. There has been a significant turnaround in the past six months as US stockpile waned and were replenished at a much slower pace. Natural gas prices bottomed last winter and by mid-summer began to recover.

Former administration in the US tightened environmental laws on carbon emissions. This spurred the conversion from dirty fuels like coal to clean burning natural gas. In particular, most US coal fired electric generating plants have been phased out and others will be replaced by more efficient and lesser carbon emitting gas fired plants. Natural gas demand on the continent increase quickly.

Here in Canada, we rely mostly on exporting our natural gas supplies and exports to the main importer have all but vanished. At one time, US imported most of our natural gas supplies. Today we are looking at exporting natural gas in liquid form (LNG) but the infrastructure is in the developmental stages. Procedures are quickly occurring. Two LNG projects are under construction in British Columbia and one is being constructed on the east coast near Stain John, New Brunswick. Several other smaller LNG plants are being planned for Nova Scotia.

Interest in developing natural gas in the  provinces of Quebec, New Brunswick, Nova Scotia and Price Edward Island is beginning to heat up. Even the left leaning provincial Liberal government has eased restrictions on natural gas development in the eastern townships of Quebec. Natural gas companies are optimistic that fracking will soon be approved.

Alberta and British Columbia, the most prominent natural gas producers has once again taken the lead. The Montney, Horn River and lesser known discoveries have attained unprecedented development levels. According to COADC, rig utilization in British Columbia has been the highest in Canada during the past five years.

A study, commissioned by B.C. provincial government and released three years ago, estimates that the British Columbia has 2,933 trillion cubic feet of recoverable natural gas in the Horn River Basin and the Montney region. British Columbia’s natural gas reserves have surged to the highest level in Canada and if the study is accurate – one of the largest global natural gas reserves.

These new natural gas reserve estimates have tripled the previous evaluation in British Columbia. Alberta's shale reserves in the Montney have also risen. British Columbia's provincial government claims that there is enough natural gas to be capable of developing a viable LNG export operations for 150 years and still being capable of meeting all domestic needs.

The start of 2017 has brought elevated optimism. According to COADC data, rig utilization in British Columbia and Alberta is climbing to record high levels of past decade. Interest is picking up pace in Horn River and the Montney region is continuing to be strong. Producers are preparing for big exports into the Pacific Rim.

T. Boone Pickens predicts that America’s transportation sector could be the next beneficiary if the industry follows through with a conversion to natural gas. The oil tycoon has spent much time in convincing the transportation industry of the merits to change fuels. Pickens believes that conversion to natural will occur despite a slow start. Truckers are now realizing the benefits of lower fuel costs and lower maintenance.

Low oil prices and political uncertainty has had implications on the natural gas industry. If oil prices had been higher, natural gas demand would have grown at a much faster pace. These factors stalled development of all natural gas reserves. Most oil and gas companies tightened their budgets in response to low energy prices and global uncertainty.

Natural gas drilling throughout North America slowed to a standstill from 2015 to 2016. Despite the short term doom, many natural gas producers knew that the oversupplies of natural gas would drop once US economy recovered and domestic demand picked up .

The return to colder weather this winter has brought about depletion of US working gas stockpiles; presently, stockpiles are below the five year average. Slower development of US shale natural gas reserves has helped curb oversupplies. Should oil prices recover, rig availability may further hamper natural gas development in northeastern US and keep supplies of natural gas tight

Canadian natural gas stalwarts like Canadian Natural Resources, Devon Energy Corporation, Encana and Penn West Exploration have witnessed budget restraints due to low energy prices. Stalwarts, such as Encana, have laid-off significant numbers of their workers and proceeded in the same direction as Devon Energy and Penn West, to liquidate some of their most promising natural gas assets.

Other companies, who were more optimistic, budgeted accordingly and took advantage of the situation. Natural gas properties were attained at bargain prices. Canadian Natural Resources Limited is one that has taken over the lead. During the past two years, this company has drilled drilled over 12,000 natural gas wells in western Canada.

While size of the company helped sustain it through the tough times, some smaller companies have made made significant strides. Painted Pony Petroleum, who prior to the oil price downturn sold their valued oil properties and turned their resources to acquire vast properties in northeastern British Columbia. This company has shown that sound management is the key to being successful.

Energy investors should be aware of the developments occurring globally. Political changes throughout the world may hasten change. Should crude oil prices stay low, rising natural gas prices may stall in the range of $3.00 to $3.50/MMBtu. Should oil prices rise, natural gas prices may spike at $5/MMBtu or even high should demand rise.

There is growing optimism. Asian rim markets are looking very good. China has shown a strong interest in converting from coal to natural gas. The Chinese government has realized that it can no longer set aside the problems created by carbon emissions and pollution.

Vigilant natural gas producers have realized that China alone could change the direction of natural gas demand and supply. Natural gas industry is truly entering a new and golden era.

If there is a solid affirmation that natural gas industry in Canada is for a change, then look what is happening in the Montney. ConocoPhillips has sold its rich shale oil assets in the Permian Basin of Texas and has quadrupled its natural gas assets in northern Alberta and British Columbia. Clearly this indicates a more promising future for the Canadian natural gas sector!




















           About the author and editor...


“My introduction to the oil industry occurred at a very early age, a year prior to  attending grade school. I was fortunate to be brought up on a farm in east central part of Saskatchewan. During the 1950's there was a buzz in the oil and gas exploration activity.


An exploratory well was being drilled a few hundred yards away from my parents’ farm. My mom and dad didn’t know it but I’d sneak off and watch the roughnecks as they proceeded to drill the well.


Many years later I found out it was only a test hole but these early moments in my life drew a strong attraction to the oil and gas industry.


After graduating and  completing my post secondary education, I began my work for Prairie Gas Ltd. Few years later, I started my employment with Home Oil Co. Ltd. When that company was bought out. I exited from the oil and gas industry.


In the 1980's I acquired an interest in the stock markets. I  educated myself by reading dozens of books written by such authors as David Cork, and David Chilton. Two of my most impressive authors in investing and the stock markets are Peter Lynch and William J. O’Neill.


With the coming of the internet, stock investing was opened to the fortunate that were computer literate. I began trading stocks on the internet in the late 1990's.


In 2005, I designed my own website, and published ‘JeriCan on Oil Blog’. Within months, I changed directions of the website to an investors information site called ‘JeriCan on Oil’.


I continue to gather information and make it available to the public.  In 2009, I began publishing ‘Canadian Insight’;  it’s my most recent venture.


I hope that all my readers find the material here to be informative, enjoy reading my articles and continue benefiting from the news on this site.”


Please tell a friend about this site; we don’t want it to be a hidden secret.


Best regards,

Jim Klemchuk







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