Friday, May 29, 2009

Canadian Gas Face Threat From U.S. Shale

I read an interesting article in the Calgary Herald about the Canadian reaction to the increased supply from U.S. shale plays. The Canadian gas industry, which is largely located in the Alberta province, has been watching from a distance as production grows from new plays like the Haynesville Shale.

Canada has loads of oil and gas and has its own fertile shale plays, including the Western Canadian sedimentary basin (WCSB), Montney (in British Columbia), Horn River Valley (in WCSB), Utica Shales (Quebec) and the Colorado Shales (Saskatchewan). The map below, from the recent EnCana presentation, shows the key locations of shale gas in North America.

Canada's problem is that these formations are located far from their end markets, which increases transportation costs. Also, because of the weather, exploration can be a seasonal venture, which can increase costs. The Canadian gas industry is not as technologically developed as its U.S. counterparts in terms of developing unconventional resources. EnCana is probably the technological leader based on its experience in the Haynesville Shale.

Because the economic environment has become hostile to new gas drilling projects, Canadian gas projects face numerous hurdles. Gas prices simultaneously were shocked by changes to supply and demand. The economic downturn cut North American demand by about 3 Bcfe/day, while increases in supply, mainly from U.S. shales, increased supply by about 3 Bcfe/day.

It will be interesting to see if any Canadian drillers other than EnCana get involved in U.S. shale projects, either as learning tools or ways to boost their own revenues.

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