CALGARY — The Conference Board of Canada estimates profits for the country’s natural gas producers will hit a 10-year low this year.
The Ottawa-based economics think-tank said Friday the gas industry’s overall profit will total just $2.3 billion this year, down 60 per cent from last year and the lowest since 1999.
It also says output by Canadian gas producers will be down five per cent in 2009 from last year’s level, which was 5.2 per cent below 2007 output.
“So much has changed for the natural gas industry in just one year,” said Todd Crawford, an economist with the board. “Last year, revenues more than doubled over the first six months as gas prices skyrocketed. Now, low prices and the tough credit conditions have created a perfect storm that sent drilling activity in Canada tumbling this year. ”
While lower natural gas prices are a benefit to consumers who will heat their homes this winter or rely on electricity produced from gas-fired generation stations, it’s not certain whether all the benefits of lower prices will be passed on to gas users.
That’s because many utilities and distributors have long-term supply contracts that lock them in to paying higher prices than the current spot price.
The other fallout from lower prices is that it weakens the financial state of the country’s gas producers, which account for a big chunk of drilling activity in Alberta, in particular.
In its report, the Conference Board said it expects gas-sector profits will begin to grow again in 2010.
The report comes a day after the National Energy Board said it’s expecting Canada’s natural gas market to tighten over the next two years.
In a report Thursday, the federal energy regulator said the current downturn in Canadian natural gas drilling will put a “significant dent” in supplies between this year and 2011.
Natural gas prices have tumbled from a high of US$13 per 1,000 cubic feet in July 2008 to below US$2 per 1,000 cubic feet earlier this month, prompting many energy companies to rein in their drilling.
Prices have since rebounded somewhat, but still languish well below the levels many companies need to make their activities economically viable.
Less than half the number of rigs were working in Canada this week compared to a year go.
According to the Canadian Association of Oilwell Drilling Contractors, there were 193 rigs active the week of Sept. 15, compared to 410 at the same time of 2008.
Production from new and existing conventional natural gas wells, which represent a big portion of North American supply, is expected to decline.
But unconventional activity in tough-to-access tight gas and shale gas reservoirs is expected to continue at modest levels into next year, as the industry hones its drilling and fracturing technology.
Overall deliverability — the ability to produce gas from new and existing wells — is expected to decline by 17 per cent by 2011.
The recession has eaten away at demand from natural gas, namely from industrial users who use the commodity for electrical generation.
However, Canadian demand is expected to rise six per cent between now and 2011, with the biggest increase coming from Alberta oilsands developers.
Natural gas is used to generate power and create steam for many oilsands projects.