Falling oil and gas prices mean Arctic development will slow

Daniel
Daniel MacEachern
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‘Conservative’ estimate forecasts $53.9B in benefit to Atlantic Canada through 2030

Economist Bill Pike says rising production and falling prices means Arctic oil and gas development will proceed slowly. — Photo by Daniel MacEachern/The Telegram

How much will Arctic oil and gas be worth to Atlantic Canada for the next couple of decades?

It’s a dicey calculation, said Bill Pike, chairman of the World Oil Editorial Advisory Board at the Newfoundland and Labrador Oil and Gas Industry Association’s annual conference Thursday afternoon. Falling oil and gas prices in the wake of increased oil production and worldwide shale oil production will slow the funding of extremely expensive Arctic development.

“It’s one thing to have significant resources, but often quite another to be able to economically develop them,” he said. “The thing you’ve gotta be mindful of, because we know the resource is enormous — it said in the paper today 90 billion barrels of oil — is can you market it, where can you market it, and will it be economic to market it?”

About two-thirds of Canada’s oil and gas production is exported, so robust external markets are needed. “You’ve got to ask yourself, given the fact that we know that these (Arctic projects) are going to be fairly expensive to develop: do the markets exist at price levels you can live with?” The United States earlier this month hit a 14-year oil production high, and Canada’s biggest trading partner is now a natural gas importer rather than exporter.

“The U.S. market is probably not a good place to count on, which has been the traditional market for Canadian oil and gas,” he said. “Economically, we’re no longer viable, for the most part, as an export market for the potential that you have in the Arctic today.”

The global oil market isn’t much more promising; Saudi Arabia has upped oil production and says it will keep production up, while demand for oil and gas in Europe and elsewhere isn’t growing like it once did.

The economic growth in China and India — while still quite healthy, Pike hastened to point out — has slowed. Add it up — or more accurately, don’t add it up — and world oil consumption grew just 0.7 per cent last year.

“All of this tells me that the demand for oil is not as healthy as one might hope if you’re looking at the Arctic resources and how much they’re going to cost to develop,” he said.

The global gas market — apart from the United States, where the price is “in the toilet,” said Pike — is much more promising. The U.S. price is $1.82 for a thousand cubic feet (abbreviated “Mcf”), but in Europe it’s $11.12/Mcf and in Asia it’s $17.81/Mcf.

“The idea … about opening the Northwest Passage is a really fascinating idea, combined with the idea that you might have a very healthy gas export market to Asia, and that’s worth bearing in mind,” Pike said.

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Big benefits for Atlantic Canada

 

Still the low end — what Pike calls a conservative estimate — is a predicted $53.9 billion of economic benefit to Atlantic Canada through 2030, based on the development of four oil fields and two liquefied natural gas plants.

The best-case scenario — which Pike was careful to label “wishful thinking” — was based on 10 oil and gas fields and two liquefied natural gas plants, forecast to provide $474.1 billion to Atlantic Canada.

There’s another resource Canada might consider, concluded Pike, tongue in cheek. “You have, if memory serves, half to two-thirds of all the fresh water in the entire world,” he said. “So I did some math: drinking water, bottled drinking water, at 50 cents a pint, sells for $168 a barrel. So if this doesn’t work out, you’ve got an alternative.”

 

dmaceachern@thetelegram.com

Twitter: TelegramDaniel

Organizations: World Oil Editorial Advisory Board, Newfoundland and Labrador Oil and Gas Industry Association

Geographic location: Arctic, Atlantic Canada, United States Europe Asia Saudi Arabia China India Northwest Passage Atlantic Canada.There

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  • PaulSt.John's
    June 22, 2012 - 07:49

    It is becoming more and more obvious that economic forces are on a direct collision course with the environment.