CAPP President Sees Gas Prices Fueling Governments

by Elsie Ross

With skyrocketing natural gas prices and higher crude oil prices, the energy industry is making a strong contribution to provincial government coffers, an industry spokesman said in Calgary.

Pierre Alvarez, president of the Canadian Association of Petroleum Producers , said in Alberta this year, about $8.7 billion or 36% of total revenues and possibly up to $9 billion with a continuing rise in gas prices will come from oil and gas.

In British Columbia, the government will receive about $1.2 billion from the energy resource sector, more than from the forest industry. Saskatchewan will take in an estimated $900 million to $1 billion, he said.

Responding to a question about how the industry can justify the current high gas prices, Alvarez pointed out that over a 10-year period the oil and gas sector's return on investment has been only two to three per cent. "The troughs were very very deep and many producers had balance sheets that needed a great deal of repair," he said.

Companies are now reinvesting higher cash flow in capital projects. In addition, Canadian companies are price-takers, grabbing what is offered by the market on an increasingly short-term basis, said Alvarez.

In other matters, he said resource access questions will be "absolutely critical" as the petroleum industry looks to the Foothills and Northern Canada for new gas reserves to meet the skyrocketing demand.

"If you can't access the resources, you're out of business. It's as simple as that," Alvarez told a noon luncheon of the Calgary Chamber of Commerce .

Oil and gas companies, he said, are increasingly moving into areas of competing land use near Alberta's national parks and eastern slopes, where there are greater demands for protected areas to be set aside.

The government always has the power to release or withhold rights to resources as they own them, Alvarez later told reporters. "Once they have released them, the expectation of industry is that they should be able to access them on a reasonably timely basis."

CAPP, he said, is spending a lot of its time these days working with governments, regulators and other stakeholders to sort out the rules to bring greater access of security to the resource base.

Industry knows it is going to be regulated and is prepared to meet the highest levels of regulation, said Alvarez. "But we want the rules to be clear and certain over time."

Part of the problem is that the rules haven't kept pace with the changing nature of Alberta and Western Canada, he said. "We are increasingly urbanized and there are more and more people in areas that were previously isolated."

Alvarez said regulatory systems throughout Canada need to keep up with changes in demographics and the industry as it moves into areas where gas wells are deeper, more expensive and often more sour.

The trend towards more sour gas will also require a change in "the way we do business," the association president acknowledged. Increased industry uncertainty comes with changes in Alberta Energy and Utilities Board rules concerning sour gas, said Alvarez.

Even with its limitations, Western Canada, with its significant reserve potential, still offers the best gas opportunities in the short and medium-term, he told Chamber members. Alberta's reserves, for example, are only one-third tapped.

While there are additional gas opportunities in other parts of Canada, Alvarez said they are mainly still a way down the road. The north, for example, offers "very exciting possibilities," but the solution to medium- and short-term gas is not going to be the Northwest Territories, he said.

At present, 300 mmcf per day of gas is coming out of the north, mostly from the Fort Liard area, but due to unsettled land claims, no exploration land is available, Alvarez said. "It's interesting that at a time when there is intense pressure on the gas markets there is no land for sale in potentially one of the most prolific areas," he said.

On the East Coast, there has been talk of expanding the Sable Offshore Energy Project to 650 mmcf per day from the current 500 mmcf a day. PanCanadian Petroleum Limited has also reported significant potential for its Deep Panuke project, but it also would take some time to get it to market, said Alvarez.

Canada continues to be an attractive place to invest in the oil industry, he said. The country has a very significant resource base and basins are still relatively immature in comparison to the United States. The country is well connected to North American markets with the certainty of the North American Free Trade Agreement.