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Shale gas industry sees price bottom: survey

Jennifer Kwan
Fin - Balance Sheet - CA
Shale gas trucks in Hampton, N.B.

A vast majority of North American industry executives believe shale gas prices have bottomed out, according to a survey by Canada's biggest bank and The Economist Group.

The shale gas boom in North America has resulted in record-low natural gas prices, which is changing the way companies and governments assess the impact of unconventional gas production on markets, business models, risks and the economy.

The survey assesses four sectors including energy exploration and production to come up with those findings.

"Faced with a collapse in prices, energy producers have had to write down assets in the order of billions of dollars, and energy service companies have had to shift markets," says the report published on Tuesday by RBC Capital Markets and Economist Intelligence Unit.

The boom can be seen affecting specific business segments. Case in point, it is forcing Canada's oil sands industry to question whether it is economically viable to process its crude into lighter oil, according to a recent analysis by Thomson Reuters.

But the survey showed some 87 per cent of exploration and production industry participants believe natural gas prices will stay the same or increase over the next two years. Nearly three-quarters expect a price increase of 10 per cent or more in the next five years.

Apart from energy and production, the coming years will be transformative for companies in the infrastructure, manufacturing and transportation sectors, said Richard Talbot, co-head of global research at RBC Capital Markets.

Overall, the economics of the industry are changing given the current glut of gas in the U.S., the study shows.

"By having the U.S. market all of a sudden be able to generate a rapid increase in the amount of gas that they are bringing to market, that's having an important change in terms of Canadian exports," said Talbot.

There has a been a "a pretty important drop in terms of the net exports from Canada to the U.S.," he added, which has resulted in a material difference in Canadian oil and gas prices versus global benchmarks.

More than half of respondents said shale gas could lead to natural gas becoming a key U.S. export in the medium term.

Despite some apparent growing pains, respondents predict shale gas will give the U.S. and Canada a competitive edge, at 52 per cent and 48 per cent, respectively, and can create opportunities for investors and companies.

The report surveyed 357 North American senior executives in various industries.