(Calgary) Continuing drought conditions will test natural gas producers as they seek to ramp up operations ahead of the opening of Canada’s first liquefied natural gas export terminal, warns a new report.
The document produced by Deloitte Canada identifies potential water shortages in Western Canada as a major risk facing the oil and gas sector in 2024.
Some of the most severe drought conditions are currently in northeastern British Columbia and northwest Alberta, a region that is the epicenter of Canada’s natural gas drilling industry.
The report notes that the Alberta government has already established a drought advisory committee to begin negotiations over water use, while British Columbia Premier David Eby called the situation the “most dramatic drought we have ever experienced”.
Water use is important to the natural gas industry. Most developments in Canada today involve hydraulic fracturing, a process that uses a combination of water, sand and chemicals to develop pathways to bring gas to the surface.
The drought comes as the industry anticipates increased demand for natural gas, coinciding with the planned opening next year of LNG Canada’s facility in Kitimat, British Columbia.
“It’s really interesting to see, because this is the moment that the natural gas industry has been waiting for 10 years, and now we’re faced with another complication,” says Andrew Botterill, national leader in oil, gas and chemicals at Deloitte Canada.
LNG Canada’s $40 billion project will ship liquefied natural gas overseas and open Asian markets to Canadian natural gas for the first time.
Much of the $5 billion in capital spending made in British Columbia by oil and gas producers in 2024 will be driven by natural gas drilling to supply LNG Canada as the project’s completion date draws closer , according to the Canadian Association of Petroleum Producers.
“I still think that the companies, especially those that are committed to injecting volumes of gas into the very expensive plant that has been built, will meet all of those requirements… It’s just going to be a harder job and will likely result in additional costs related to water management,” said Botterill.
In December, the Alberta Energy Regulator warned the oil and gas industry that it could face restricted access to water in the event of a severe drought in 2024. The provincial government has already launched negotiations aimed at convincing major users to enter into water sharing agreements.
Meanwhile, B.C.’s energy regulator has raised the possibility of water restrictions for industrial water licensees if conditions deteriorate.
Botterill believes that as restrictions are put in place, gas producers will need to consider increased use of alternative water sources. Using recycled water – which means treating and reusing previously used fracking fluid – is an option, but it is generally more expensive and more technically complex than using fresh water.
In 2022, according to the Alberta Energy Regulator, just over 1% of water used by fracking operations was recycled water, with the remaining 99% primarily fresh water.
“I think we will see companies being able to manage, but there will be a lot more work to do,” says Mr. Botterill.
“I see this as an expense and a complication of operations. »