Drilling to stay on par with 2017

By Gillian Slade on January 27, 2018.

gslade@medicinehatnews.com  @MHNGillianSlade

The price of oil is up but Alberta production levels are likely to remain consistent with those in 2017, says an industry expert.

“We’re going to see 2018 overall spending on drilling about flat with 2017, but last year there was a huge jump over 2015 and 2016,” said Gary Leach president Explorers and Producers Association of Canada. “A big recovery last year, as prices increased, but all the forecasts I’m seeing suggest we shouldn’t expect any significant change in 2018.”

Last year was reasonable in terms of number of wells drilled, said Leach. There are about 350 active drilling rigs across Western Canada but it is seasonal work and this is the busiest time of the year.

“By April a lot of those rigs will be shut down,” said Leach.

The increasing price of oil is positive politically, says Jim Groom, political science instructor at Medicine Hat College. It is timely for the current government with an election a little more than a year away.

The price of a barrel of oil has been increasing recently but the problem is getting the oil to the global market where that price exists.

“… we have no markets outside of the United States,” said Leach.

Although Alberta oil doesn’t get the global price, it does increase proportionately to some extent, and that means additional government revenue, said Groom.

“Even if there is a deficit budget I think it still bodes well for the future,” said Groom.

Albertans working for government or an organization that depends of government/taxpayer funding is probably encouraged too, said Groom. They may no longer be facing cuts to the extent expected in an austerity budget.

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The oil refinery in Edmonton processes 400,000 barrels of oil a day, and Alberta is producing 3.5 million barrels a day, said Leach. Lots of Alberta bitumen is transported by rail to big refinery markets in Chicago, the Gulf Coast or Eastern Canada, and those transportation costs are absorbed by the producer.

If pipelines were built, the province would be in a better position today, he says.

“We’ve made choices, and continue to make choices, that are causing tremendous economic devaluation of our energy products on the oil side,” said Leach.

Alberta gets whatever the Americans are willing to pay, and the U.S. is rapidly increasing oil and natural gas production, said Leach.

“Our industry would like to be players but we’re prevented by decisions that we don’t control,” said Leach.

Only a year ago, before the U.S. was a prolific supplier of natural gas and crude oil, “We had a market that would take anything that we could sell”, said Leach. In January, the U.S. became an international gas exporter for the first time in its history. It is exporting more natural gas than it imports from Canada.

“So we are reduced to the role of kind of ‘back-filling’ into markets the Americans are allowing us to be competitive in while they sell natural gas all over the world and the same with crude oil. They became a crude oil exporter too in the last year,” said Leach.

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