A Deloitte Canada report warns that drought conditions in western Canada could strain natural gas producers as they prepare to supply the country’s first large-scale LNG export facility.
The LNG Canada Terminal project in Kitimat, British Columbia, is under construction and is expected to enter service in mid-2025. Producers expect supply links to Asia to boost prices in the long term. Natural gas (NG=F) prices recently fell to four-year lows due to warm winter weather and expanding inventories.
“Drought conditions will pose a variety of challenges to oil and gas development in 2024,” Deloitte Canada’s Resource Assessment and Advisory Group said in a report released Wednesday. “The most significant field development is planned in areas directly related to LNG Canada.”
Water is a critical resource for drilling and completion operations in the oil and gas industry. According to the Alberta Energy Regulator (AER), nearly all of the water used in oil and gas operations in 2022 came from fresh sources.
Last month, Alberta’s environment minister said the entire province was in a “serious situation” with river beds marked by empty riverbeds and dangerously low reservoirs. Rebecca Schultz said the warm, dry conditions were due to “the strongest El Niño we’ve seen in seven years.”
In December, the AER stated: Water license holders in the oil and gas industry may be restricted Due to low water levels, water is no longer being diverted for business purposes.
“Permits that are at risk of not being able to divert water in 2024 should prepare contingency plans,” the regulator said. “We do not yet know whether this drought will become a multi-year event, so operational preparedness for the industry is essential.”
The Mountain View Area Water Services Board, owner of the Anthony Henday Water Treatment Facility 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 to follow suit as conditions become drier.
“Using recycled water or other alternative water sources with additives to achieve the composition required for effective fracturing operations is an option, but it is costly,” the authors write. There is.
Meanwhile, LNG Canada aims to initially export up to 14 million tonnes of LNG per year.
Deloitte added that “companies will consider increasing production and drilling new wells to supply new operations,” describing the drought conditions as “bad timing across the board.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
