Natural gas producers and drillers, whose field activity plummeted this year probably won‘t be seeing much relief in 2008, while action in the oilsands is expected to intensify thanks to record-high crude oil prices.
The bottoming out of North American natural gas markets coupled with the soaring loonie made for an “unpleasant and difficult‘‘ year, said Don Herring, president of the Canadian Association of Oilwell Drilling Contractors, adding that in 2008 “the story continues to worsen.‘‘
Herring‘s group predicts a huge in drilling in 2008. The industry drilled 6,000 fewer wells this year than in did in 2006 and next year it expects to see that figure by about another 2,560 _ a 38 per cent within two years.
The Petroleum Services Association of Canada also released dismal predictions for 2008. That group forecasts drilling to go down by 17 per cent between 2007 and 2008.
Natural gas prices hit record highs in the fall of 2005, a particularly bad hurricane season for the U.S. Gulf Coast, which hosts a number of major gaswells and gathering pipelines. But since then, North America has experienced two warm winters and one tame hurricane season, leading to a big supply surplus.
In addition, the expansion of liquefied natural gas projects has d a global market for LNG, which would freeze and liquefy gas produced in Russia, the Middle East and South America and ship it by tanker to North American markets, where it would be regassified and used to boost supplies to consumers, businesses and power plants.
The average price of natural gas in North America was about $6.50 per thousand cubic feet this year.
“A large number of potential wells are uneconomic at that price. Really to make gas economic again in Canada, we need prices north of $8.‘‘ said PSAC president Roger Soucy.
“There‘s a lot of gas in North America right now as a result of some warm winters and we don‘t expect that we‘re going to come out of this heating season next March with a whole lot changed.‘‘
It has been a different story in Alberta‘s oilsands where businesses there have been reaping the benefits of record-high crude oil prices. Oil started off the year at around the US$60 a barrel mark and came close to US$100 before losing ground on concerns about the impact a U.S. recession would have on global oil demand.
A number of Canadian energy giants _ like EnCana Corp. (TSX:ECA), Petro-Canada (TSX:PCA) and Husky Energy Inc.(TSX:HSE) _ have outlined plans to expand their oilsands operations in their 2008 capital spending plans.
International producers have also been looking to increase their stake in the vast Athabasca oilsands in northern Alberta, which are believed to contain 175 billion barrels of oil _ second only to Saudi Arabia‘s reserves.
At the beginning of the year, EnCana inked a $15-billion deal with Houston-based giant ConocoPhillips. Under that deal, EnCana would gain 50 per cent of two ConocoPhillips (NYSE:COP) refineries while the U.S. company would have a half stake in EnCana‘s Foster Creek and Christina Lake oilsands projects.
Earlier this month Husky Energy reached a similar deal with Britain‘s BP Plc worth $5.5 billion. Each company gets a 50 per cent stake in Husky‘s Sunrise oilsands project and BP‘s Toledo refinery.
State-owned players like Norway‘s Statoil, China‘s Sinopec and France‘s Total have bought into the oilsands and Japanese, Korean and Italian players are thought to be next.
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