Fracking finances hurt feasibility
New Brunswick's hopes for a natural gas boom have been running high for more than a year, but those dreams may soon confront an unforeseen problem — nose diving natural gas prices across the continent that have been eating away at the feasibility of new developments.
"We'd like to see prices a buck higher," said Corridor Resources president Phillip Knoll.
"At that price level we'll have the economics to go ahead with a commercial development in New Brunswick."
Knoll said natural gas prices in the U.S. of between $4.50 and $5.50 per million but would likely make shale gas developments viable in New Brunswick.
But that may be years away. Just this week, spot prices in the U.S. sunk to a two year-low of $2.40.
The collapse of natural gas prices comes in the wake of enormous shale gas developments underway throughout the United States.
In Washington, the U.S. government's Energy Information Administration (EIA) last year upped its estimate of recoverable gas from shale in that country 135 per cent to 821 trillion cubic feet and said so much gas is now being produced domestically, shipments from Canada may soon have to be curtailed.
"Production is growing faster than consumption therefore we have declining imports (in our projections)," said EIA director Richard Newell.
The EIA also said large domestic production increases have made it unlikely for natural gas prices to get back to $5 until after 2020.
That's all bad news for those, like New Brunswick, that hope to sell gas south of the border.
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In Alberta, which earned $8.4 billion in natural gas royalties in 2006 — largely from exports — budget documents show those are expected to sink to just $1 billion this year, thanks to the shale gas shakeup underway in the U.S.
Meanwhile, the giant Russian state-owned gas company Gazprom has postponed its plans to begin shipping gas into the U.S.
Those problems also extend to New Brunswick. In Saint John, Repsol's LNG (liquefied natural gas) terminal which exclusively exports to the U.S., is operating at a third of its capacity, while Corridor's gas fields in Penobsquis returned just $606,000 in royalties to the province last year — down 85 per cent in two years. All consequences of the shale gas revolution unleashed in the U.S.
Still, supporters of shale gas development in New Brunswick, including Corridor's Phillip Knoll say commodity prices are unpredictable and the province might as well investigate what it has in the ground and make a decision on whether it's worth developing later.
"It will take several years to determine if we have a viable resource," said Knoll. "I think this is a very good time to take the steps to determine how much resources are in New Brunswick and to determine if we can viably extract them. I believe by that point gas prices will have recovered in North America."