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Oil and gas companies dealing with natural gas glut

An article in the Vancouver Sun yesterday reports what many in the Northeast already know: that oil and gas companies are getting ready for a downturn, that won't end until a liquefied natural gas terminal is approved for Kitimat.

It points out how several companies like Talisman Energy and EnCana have already cut back production, and adds that Fort St. John companies are starting to feel the effects already. Fort St. John Mayor Lori Ackerman told the paper that companies have decreased services 30 to 50 per cent since last year, and are just waiting for LNG to pick things up.

"The announcements for liquefied natural gas are that light at the end of the tunnel, but that’s going to take a few years to come on line."

Art Jarvis, executive director of Energy Services B.C., echoes that sentiment, saying the prospect of LNG is "giving us hope" that the Northeast will be able to tap into Asian markets, to get away from the North American natural gas glut.

The development of fracking has spread natural gas developments in North America, causing the price of natural gas to fall drastically. Natural gas currently sits around the $2.50 U.S. per million BTUs point, a far cry from profitable.

However, Scotiabank commodities expert Patricia Mohr argues there are two factors that should help the northeast, especially the Montney shale gas play. The first is Asian investments, like the recent deal between EnCana and Mitsubishi. The second is wet gas, a mixture of liquids from oil to butane, which is prominent in the Montney, as well as EnCana's Cutbank Ridge play. That makes those wells more profitable than dry gas wells.

So for now companies are lowering investment and shutting down wells until prices increase or the first Kitimat LNG project is completed.

To read the full Vancouver Sun article click here.