Yahoo Finance 'Bad timing': Natural gas firms ramping up for LNG Canada face drought conditions
A report by Deloitte Canada warns drought conditions in Western Canada could strain natural gas producers preparing to supply the country’s first large-scale LNG export facility.
The LNG Canada terminal project in Kitimat, B.C. is under construction, and slated to begin service in mid-2025. Producers expect the supply link to Asia will deliver a long-term boost to prices. Natural gas (NG=F) prices recently fell to a four-year low due to warm winter weather and bulging inventories.
“Drought conditions will present a range of challenges for oil and gas development in 2024,” Deloitte Canada’s resource evaluation and advisory group stated in a report released on Wednesday. “The most significant field development is slated for areas that are directly associated with ... LNG Canada.”
Water is a key resource in the oil and gas industry for drilling and completion operations. According to the Alberta Energy Regulator (AER), virtually all of the water used in 2022 for oil and gas operations came from fresh sources.
Last month, Alberta's Environment Minister described a "serious situation" across the province, marked by empty riverbeds and dangerously low reservoirs. Rebecca Schulz said the warm, dry conditions are due to "a strong El Niño not seen in seven years."
In December, the AER said water licence-holders in the oil and gas industry could be restricted from diverting water to their operations due to low water levels.
“Licensees at risk of not being able to divert water in 2024 should prepare contingency plans,” the regulator wrote. “We do not know yet whether this drought will become a multiyear event, consequently industry operational preparedness is vital.”
The Mountain View Regional Water Services Commission, owner of the Anthony Henday Water Treatment Plant on the banks of the Red Deer River, has already passed a ban on oil and gas operations using its treated water.
Deloitte expects other regions will follow-suit if dry conditions intensify.
“Using recycled water or other alternative water sources, with additives to achieve the necessary composition for effective fracture operations, is an option, but it comes with costs,” the authors wrote.
Meanwhile, LNG Canada is targeting initial exports of up to 14 million tonnes of LNG per year.
“Companies will be looking at ramping up production and drilling new wells to supply the new operation,” Deloitte added, describing the drought situation as “bad timing all around.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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