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Despite silver-linings, headwinds remain for local O&G industry

Pipeline capacity and aggressive American expansion top challenges, business leaders hear
Chris Montgomery, manager of exploration and production communications for the Canadian Association of Petroleum Producers, says pipeline capacity and a glut of U.S. natural gas on the North American market remain challenges for Canadian producers. - Jonny Wakefield Photo

Northeast B.C.’s oilpatch is showing signs of recovery after the worst downturn in a generation, but the oil and gas industry continues to face headwinds that could make a full recovery impossible.

That’s according to Chris Montgomery, manager of exploration and production communications with the Canadian Association of Petroleum Producers.

In a presentation to business leaders in Dawson Creek Sept. 28, Montgomery outlined a bleak but improving picture for Northeast B.C.’s oil and gas economy.

Natural gas drilling in the region has fallen along with the drop in oil and gas prices, which began in August 2014.

That year, 616 wells were drilled in B.C. This year, CAPP is projecting just 210. Canadian oil and gas saw the biggest year-to-year drop in capital spending on record this year, while B.C. recorded its first-ever $0 oil and gas land sale this February.

But there were signs of improvement.

Montgomery said many producers are taking the time they would have used drilling to move their existing supply and perform “turn-arounds” on natural gas processing facilities. He spoke one day after the federal government approved Pacific NorthWest LNG, and the same day that OPEC countries agreed to cut production to drive up oil prices, which are tied to natural gas.

“There’s some cause for optimism, but it’s important to note there’s not a lot of drilling activity,” Montgomery said.

“There’s not a lot of new resource that’s being drilled into at this point, but at least companies now seem to be confident that they’re stable financially and they’re able to perform some of that work. It’s not quite as gloomy as it was in the past.”

At the same time, the industry faces structural problems that could spell long-term trouble.

For one, oil and natural gas supplies are expected to exceed existing Canadian pipeline capacity in the coming years.

But the much bigger issue: the United States, once the biggest customer for Canadian natural gas, is now its biggest competitor.

Between 2008 and 2014, the U.S. added 15 billion cubic feet per day of gas processing capacity—the equivalent of all Canadian production put together.

“In five years, the U.S. brought on the entirety of the Canadian supply onto the North American market, and they’re our only foreign customer,” Montgomery said. “From a business perspective, it doesn’t make sense to have (the U.S.) as our only foreign customer. We need to diversify our markets.”

U.S. producers are also seeking to drive pipelines into Southern Ontario, which could effectively cut Western Canada out of the domestic oil and gas market.

If built, Pacific NorthWest LNG would allow for the sale of Canadian gas to overseas markets for the first time. However, with prices low, it remains to be seen whether B.C. has missed its opportunity to enter the LNG market.

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