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Alberta is experiencing an uptick in prosperity because of the unconventional resource development being spurred by encouraging drilling incentives recently introduced to oversee the western Canadian province’s continued economic growth.
Speaking at Hart Energy’s inaugural DUG Canada conference and exhibition June 19, Alberta Premier Alison Redford told more than 900 attendees that Calgary, the city hosting the event, is leading the charge, becoming more industrious and adding to Alberta’s coffers while the oil and gas industry propels unconventional resource development forward. “We’re seeing such tremendous opportunity and investment in our province that it really does require us to take pause and think about how fortunate we are to live in a jurisdiction with the resources that we do.
“We all know that life is about change,” Redford continued, “and this is particularly true in the world of unconventional energy development. The unlocking of shale gas has redefined the North American natural gas market.”
According to the premier, unconventional resource development has the potential to make significant contributions to Alberta’s future natural gas supply as advancements in drilling and completion technologies allow for the cost-effective development of more shale gas resources.
Approximately 11 Bcf/d of natural gas was produced in Alberta in 2010. However, shale gas development in the province is in its early stages, Redford said, with 250 producing shale gas connections made in 2009 and annual production of 7.8 MMcf/d.
“Development activities have been mainly concentrated in east-central Alberta with the Colorado group shales,” but interest is growing in plays such as the Duvernay and Muskwa formations, she said.
Redford addressed risks facing Canada’s natural gas market because of an abundance of gas supplies in North America. Historically, natural gas prices have been cyclical, and the Alberta government “has never relied on the revenue from one particular natural resource to build the infrastructure and to provide the services that Alberta has come to expect.”
But natural gas production was once the great driver of provincial resource revenues, the Alberta premier pointed out, with CAD$8.4 billion in royalties generated by Alberta alone in 2005, representing just under 60% of the province’s resource revenues. “In 2011-12, that’s fallen to just over a billion dollars -- just 10% of all of our resource revenues.”
The most recent drop in natural gas prices “has persisted to the point where we have to consider this, from our perspective, to be the new normal,” she noted. As a result of steep price declines from $8/gigajoule (GJ) in 2005 to the current AECO price of $1.65 to $2/GJ, natural gas producers are experiencing “challenging times.”
“This prolonged slump occasioned by massive new sources of supply will mean that the industry will continue to experience some of the challenges that it has over the past few months,” Redford said.
Alberta producers also risk losing traditional markets to the American Midwest and Northeast, she continued, in addition to domestic markets if the flow of the TransCanada Pipeline, one of the larger export points in southern Ontario, is reversed to transport gas from the U.S. to Ontario as opposed to carrying Alberta gas to the Northeast U.S.
Notwithstanding these challenges facing the industry, the Albertan government remains committed to its natural gas producers, Redford said, and will ensure they can operate in an efficient, profitable, and responsible manner. Canada also has many positive operating advantages, including lowest overall taxes, simple, high-quality regulation, availability of infrastructure, a highly skilled workforce, proximity to U.S. markets, and an untapped opportunity to export LNG to Asian markets.
Meanwhile, the quality of life that Albertans have come to expect is buoyed by an industry that continues to reinvest in the province’s growth. “We are committed to ensuring that you have the certainty that you need to continue to succeed so that we as a province can continue to succeed,” Redford said. And despite certain international uncertainties surrounding economic recovery across the globe, “Alberta continues to be in a strong position.”
According to Redford, the province’s conventional natural gas industry is expected to contribute between $746 billion and $861 billion in GDP to the Albertan and Canadian economies, respectively, in the next 25 years. And, for the first time in provincial history, Alberta exceeded $3 billion in petroleum and natural gas land sales for calendar year 2011. The record land sales were the result of new drilling initiatives introduced by the Alberta government to encourage developing unconventional and challenging reservoirs, including tight gas, shale gas, and coalbed methane.
Looking ahead, the Alberta premier sees activity focused more on drilling rather than acquiring land, supported by the government’s strong regulatory framework. “Even still, we’re expecting higher-than-average land sales of $2 billion in 2012-13,” she said.
Redford also acknowledged the work that CSUR, the Canadian Society of Unconventional Resources, has done in the last 10 years to encourage the resource-rich country’s unconventional energy development. “A 10th year anniversary at a time of uncertain circumstances is something to be proud of. The efforts to increase awareness about unconventional resources in Canada have been instrumental in the development of a flourishing energy industry.”
Contact the author, Nancy Agin, at email@example.com.