KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) has been curtailing production by between 50 and 200 million cubic feet per day (cf/d) from wells in northeastern British Columbia capable of producing 700 million cf/d, due to low prices of liquified natural gas (LNG).
According to The Canadian Press report, natural gas prices in Western Canada were so low that Petronas, a partner in the country's first LNG export project, is shutting off money-losing wells and throttling back its exploration program.
The report said the practice was one being adopted by a growing number of western Canadian producers to avoid selling their natural gas at prices that often don't even cover the cost of pipeline transportation.
Petronas owns 25 per cent interest in the C$40 billion (RM123.27 billion) LNG Canada project.
“We talk a lot about oil infrastructure,” Petronas Energy Canada Ltd chief executive officer Mark Fitzgerald was quoted as saying in an interview, referring to oil price discounts in Western Canada blamed on full crude pipelines.
“Gas is trapped as well and if you compare the prices that Canadian gas producers are receiving against our US peers, the differentials are significant and costing us a significant amount of money.”
According to the report, Petronas Energy Canada had invested heavily in natural gas exploration in northeastern British Columbia from 2012 to 2016, employing more than 25 drilling rigs at peak times to prove the resource potential as part of its longer-term plan to build a liquefied natural gas export terminal.
Fitzgerald was quoted as saying that it was running only one rig now.
The report said Petronas had backed out of its C$36 billion Pacific NorthWest LNG project in 2017, but joined the LNG Canada partnership led by Royal Dutch Shell last May.
It said the partners had agreed to go ahead with their project this fall, but it is not expected to be ready to begin supercooling natural gas and shipping it out until late 2023 or early 2024.
The report quoted HIS Markit associate director Ian Archer as saying that Western Canada's gas industry was stable from 2000 to 2008, with production of about 16 billion cf/d and prices of around C$10 per gigajoule, but that changed when new drilling and well completion technologies emerged that allowed the US to dramatically grow shale gas production.
He was quoted as saying that cheaper US gas began displacing western Canadian gas in markets like California, Eastern Canada and New York, and the price in Western Canada dropped by half, with production falling to around 13 billion cf/d by 2012.
The report said the trend worsened when the new drilling technologies began to be used in northeastern British Columbia and northwestern Alberta to produce light oil products like condensate, which is in demand as a diluent to mix with raw bitumen from the oilsands to allow it to flow in a pipeline.