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Natural gas extraction industry in decline

Ottawa, ON - Canadian natural gas production is projected to fall over the next five years, driven primarily by continuing declines in Alberta, according to The Conference Board of Canada's Summer 2011 outlook for the natural gas extraction...


Ottawa, ON – Canadian natural gas production is projected to fall over the next five years, driven primarily by continuing declines in Alberta, according to The Conference Board of Canada’s Summer 2011 outlook for the natural gas extraction industry.

Even though drilling activity in Alberta is projected to rise moderately over the next five years, it will not be enough to offset the declines expected from existing gas connections in the province. As a result, Alberta’s production is forecast to fall by up to 20% between 2010 and 2015.

Large increases in British Columbia – largely due to shale gas production – and a new offshore site in Nova Scotia will help slow the decline in Canadian production. Other than in British Columbia, shale gas remains in the early stages of development across Canada.

Overall, Canadian production has fallen from 25% of the North American total five years ago to less than 20% at present.

“The natural gas extraction industry continues to undergo a period of transition. Production is projected to fall indefinitely, and barring any unexpected situation that would cause prices to spike, profits are unlikely to return to pre-recession levels until beyond the medium term,” said Todd Crawford, Economist.

The natural gas industry adapted quickly to the difficult circumstances of the past two years to maintain profitability. Pre-tax profits in the industry totaled $616 million last year-compared to more than $8 billion in 2005. Even though prices remain weak for the third consecutive year, profits will rise to $744 million this year.

The economic recovery is expected to take firmer hold next year and growth in US gas production is forecast to slow. As a result, prices are expected to see some moderate improvement through 2015, which will be the main source of revenue growth. However, costs are likely to re-emerge as a key issue for the industry – especially in Alberta, where it is in competition with the oil industry – and they will eat up a substantial portion of higher revenues.