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  • From: Tompkins County Relocalization Project <tcrp-news AT lists.ibiblio.org>
  • To: tcrp-news AT lists.ibiblio.org
  • Subject: [tcrp-news] Fw: Gas on the Rocks
  • Date: Wed, 04 Mar 2009 09:01:10 -0500

Some news about Marcellus Shale exploration that I haven't seen
here in the U.S.

Jon

==================================================================

Gas on the rocks
SHAWN MCCARTHY
From Wednesday's Globe and Mail
March 4, 2009 at 3:26 AM EST
OTTAWA -- GLOBAL ENERGY REPORTER

The natural-gas-fired land boom has fizzled in Tioga County, a
bucolic area of dairy farms and wooded hills in northern
Pennsylvania, where the credit crunch and plunging commodity
prices have taken the steam out of one of the most promising shale
gas plays in North America.

Just a year ago, there was a feverish, land-rush atmosphere
surrounding the Marcellus gas play as farmers were fetching as
much as $2,000 (U.S.) an acre to lease right-of-way on their land
to gas producers from the U.S. and Canada. Now, leasing packages
fetch nary a bid and drilling is beginning to fall off, raising
concerns about whether the landowners will ever see the promised
royalty payments from future production.

"This is lifesaving money," local land agent Jackie Root said of
the oil company investments that have flooded into her
out-of-the-way corner of Pennsylvania.

In Alberta, the drop in oil and gas activity has grown so dire
that the provincial government yesterday offered those who are
drilling and producing wells a massive royalty discount in hopes
of prodding more oil-patch-related activity.

Land agent Ms. Root and her husband, Clifford, run a dairy
operation in Tioga County.

The gas-related payments mean "farms don't have to be subdivided,
or people won't have to take work off the farms, or they can pay
back the banks," she said.

Tioga County - and other counties that sit atop the Marcellus
deposit in New York, Pennsylvania and West Virginia - has
benefited from the same surge in oil and natural gas prices that
fuelled Alberta's oil sands boom and the gas drilling rush in
northeastern British Columbia. But now slumping industrial demand
and growing production from unconventional fields in the United
States - including shale gas - have sent natural gas prices
tumbling and inventories soaring. After touching $15 for 1,000
cubic feet in the spring of 2008, gas prices have fallen to $4.20
on the New York Mercantile Exchange, and many analysts believe
they have not yet bottomed out.

The industry's retrenchment, as seen in Tioga County, is being
replicated across the continent. As a result of the lower prices
and the lack of credit, oil companies across North America are
slashing their budgets for exploring and developing natural gas
fields.

And there is little optimism that natural gas prices can return to
their boom-time levels for a sustained period of time.

With the potential for relatively low-cost production growth from
exciting unconventional gas plays, many analysts believe the
industry faces a de facto cap on prices over the medium term. And
that's bad news for Canadian producers, who face higher costs, on
average, than their U.S. competitors. "It's going to be difficult
to sustain higher prices," said Randy Ollenberger, an analyst with
BMO Nesbitt Burns Inc., "because if you started moving into an $8
or $9 world, there's just far, far too much gas potential and
supply growth potential that you can't sustain those kind of
prices."

Last year, the continental U.S. saw its natural gas production
grow by 10 per cent to 55 billion cubic feet a day, powered by
huge production increases from shale gas plays like the Marcellus,
Haynesville in Louisiana and Texas's Barnett field. In Canada, gas
production actually declined by about 4 per cent or 700 million
cubic feet a day to 15.7 billion cubic feet a day.

The leading indicator for gas production is the drill rig count -
how many rigs are in the field at any given moment exploring for
and developing new fields. "Drilling activity on both sides of the
border is collapsing faster than a bank loaded with toxic debt,"
Mr. Ollenberger said.

In Canada, drilling activity is down 50 per cent from its peak in
2007. Companies continue to focus their spending on unconventional
gas deposits in the foothills of the Rockies, and in northeastern
British Columbia, where Horn River and Montney sparked a land rush
similar to ones surrounding the most exciting plays in the
U.S. But in the conventional explorations areas of flatland
Alberta and southern Saskatchewan, drill crews are becoming more
and more scarce.

In the U.S., rig activity is down 20 per cent, and will have to
decline by another 20 per cent to eventually bring production in
line with depressed demand, said Peter Tertzakian, economist with
Calgary-based ARC Financial.

Before prices rally, the industry needs to see production fall
significantly, a bottoming out of the economy and some extreme
weather to underpin demand. Analysts don't see a significant
rebound until the end of the year, at the earliest.

EnCana Corp., Canada's largest natural gas producer, has slashed
its budget for natural gas exploration and production by
$1-billion this year compared with last. Most of that decline is
occurring in Canada as the company focuses on its unconventional
U.S. prospects. "The capital flows to where we can get our best
returns. And in the U.S., we're getting some very good returns in
the big plays," said Mike Graham, president of EnCana's Canadian
Foothills division. "Canada still has tremendous resources but it
has to make sure it can stay competitive with the U.S."




  • [tcrp-news] Fw: Gas on the Rocks, Tompkins County Relocalization Project, 03/04/2009

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