In Premier Christy Clark's vision of British Columbia's economic future, natural gas is the headliner as the province gears up to export billions of tonnes of liquefied natural gas from proposed West Coast projects.
But the premier may have to make room on the bill for another fossil fuel — thanks mainly to a Calgary-based company drilling in the northeastern part of the province, B.C.'s daily crude oil production is at a nine-year high and expected to steadily increase.
Oil analysts at Raymond James in Calgary say B.C. is becoming an emerging oil basin thanks to wells drilled by Calgary oil-and-gas producer ARC Resources in the Tower region, about 40 kilometres south of Fort St. John.
Other companies that own land nearby, including Crew Energy and Tourmaline Oil, are expected to join the rush.
A graphic from Crew Energy shows the area where crude oil is being produced in northern B.C. (Photo: Crew Energy)
"Now that ARC is getting some pretty phenomenal results, watch for them to build out the infrastructure,'' said analyst Jeremy McCrae, explaining pipeline takeaway capacity is a limiting factor for growth.
"And what you may see is some other operators start to drill and do more test wells themselves, get some comfort in the area, then they will build their infrastructure.''
McCrae added that given current oil prices, the boom won't be as pronounced as some that other oil basins have experienced.
"But if oil prices start to come back here, especially given some of the results, watch for this play to have more growth than other areas.''
B.C. Premier Christy Clark, who has long looked to liquefied natural gas (LNG) as a key to B.C.'s economic future. (Photo: Bloomberg via Getty Images)
Crude prices closed at almost US$50 a barrel on Wednesday, its highest level since October.
The Montney underground formation in northeastern B.C. is composed of several stacked layers, some containing mostly dry natural gas or natural gas liquids and some predominantly oil, McCrae said.
The pool of oil extends about 100 kilometres from east to west and could ultimately prove to be as prolific as the best oil plays in Alberta and Saskatchewan, he added.
B.C. oil production peaked at about 100,000 barrels per day in 1998, statistics from the province show, but has fallen off dramatically since then as fields were depleted and investment dried up.
Aerial view of the airport in Fort St. John, B.C., about 40 kilometres north of an emerging oil basin in the province. (Photo: Wikimedia Commons user N727RH)
In 2014, ARC started producing light oil from its first eight-well pad at Tower. It has added two pads since then and is now contributing about half of the province's total crude output of more than 26,000 barrels per day, Raymond James notes.
The B.C. production is a small fraction of Canada's total oil production of over four million barrels per day.
ARC's CEO, Myron Stadnyk, did not return a call requesting comment on Wednesday. But on a conference call in February, he said that three of the Tower Montney wells ARC drilled in 2015 were closing in on cumulative production of 100,000 barrels of oil.
The wells are expected to cover costs and become profitable in less than a year at current prices. They break even at C$30 per barrel, according to an ARC presentation.
ARC estimates it has about 9.7 billion barrels of light oil originally in place on its Tower lands. Only a fraction of that is likely to be recoverable.
"... If oil prices start to come back here, especially given some of the results, watch for this play to have more growth than other areas.''
Hamed Sanei, a Calgary-based research scientist for the Geological Survey of Canada, a division of Natural Resources Canada, said B.C. is mainly a dry natural gas producing province because of the depth and temperature at which organic materials were buried in prehistoric times.
Deeper burial means higher temperatures, thus creating more dry gas.
"When we go toward the east, we are in the right temperature zone that we could have light oil and liquid gas such as condensate,'' he said. "As we get more data now, we can assess the thermal maturity and map this area better around Fort St. John.''
He said producers drilling gas wells knew the oil was there in a zone between 1,600 and 2,400 metres deep but needed to refine their horizontal drilling and well-fracturing completion techniques to target the oil and break up the tight rock underground so it would flow into a well.
McCrae pointed out that natural gas wells in certain areas in northeastern B.C. cost $2.2 million to drill but they can then earn about $1 million in B.C. royalty credits designed to encourage exploration to feed LNG plants.
Oil wells don't currently qualify for those credits but, in its report, Raymond James says it expects recent oil growth could result in provincial government incentives and potential royalty sweeteners to encourage more drilling.
In B.C., oil regulation falls under the Ministry of Natural Gas Development.
A ministry spokesman said he could not comment on whether new oil incentives are planned.
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LNG stands for "liquefied natural gas." Natural gas gets chilled to -160 degrees Celsius so that it can be converted into liquid form. After it has been liquefied and compressed, it takes up much less space — about 1/600th less than natural gas. (Pictured: B.C. Premier Christy Clark speaking after an event for FortisBC's Tilbury LNG facility expansion project in Delta, B.C., on October 21, 2014.)
LNG is odourless, non-toxic, non-corrosive, and less dense than water. It is a by-product of decaying organic matter in rock layers formed below the earth’s surface millions of years ago. As the matter decays, the gas is trapped or isolated in the rock formations, which prevent it from surfacing.
Natural gas is a cleaner fossil fuel than coal, but carbon is still emitted when natural gas is burned, according to the Union of Concerned Scientists.
As of December 15, 2014, the provincial government had 21 proposed LNG projects lined up, mostly in Northern B.C. or along the south coast and on Vancouver Island.
Outlined in the LNG Strategy One Year Update, released in 2013, the provincial government has three key priorities to achieve the goal of three LNG facilities by 2020: Keep B.C. competitive in the global LNG market, maintain B.C.’s leadership on climate change and clean energy, and keep energy rates affordable for families, communities, and industry.
The province wants to use the estimated revenue (about $100 billion) from LNG projects to diminish provincial debt, reduce cost burdens for families and local communities, and support services such as education. Premier Christy Clark (pictured) said last year British Columbians would begin seeing revenue from LNG in 2017.
Groups opposing LNG development in B.C. cite risks for fire, low demand for imported LNG, and greenhouse gas concerns, according to non-profit organization Dogwood Initiative.
Environment Minister Mary Polak (pictured) brought in legislation requiring LNG to meet emission standards in October 2014 in order to make the industry much cleaner. Otherwise, corporations could face penalties. The target for greenhouse gas emissions is set at one-third below 2007 levels by the year 2020.
A factsheet by the B.C. government suggests the vast majority of run-off from rivers is untouched by industries. However, four Skeena River First Nations near Prince Rupert oppose the Petronas LNG project due to fears of what it could do to the salmon habitat, CBC News reported. (Pictured: Skeena River)
Premier Christy Clark said that B.C.’s natural gas supply is estimated at over 2,933 trillion cubic feet. With industry extracting about four trillion cubic feet of natural gas each year, that means B.C. has over 150 years of natural gas in supply, CTV News reported.
Malaysian energy giant Petronas delayed construction of an LNG terminal in Prince Rupert in December 2014, saying conditions weren't right to follow through with the project at the time. The $36-billion dollar deal would bring LNG across the Pacific in tankers to the Asian market. (Pictured: Petronas towers in Malaysia)
The provincial government signed an economic partnership agreement with two First Nations along the planned pipeline route for Kitimat LNG last April. Haisla Nation Chief Ellis Ross held a summit to address the job possibilities LNG developments near Kitimat would bring, and voiced his hopes that people from the area would be the first ones considered for these jobs. (Pictured: Kitimat)
In December 2014, Premier Christy Clark denied the NDP’s claims that she was planning on hiring temporary foreign workers to build LNG plants. “We believe that British Columbians have to be first in line for these jobs, but it's also true that there will be some need for some temporary workers to come in and support these projects when there are peaks in production and construction because we simply don't have enough people," she said. (Pictured: Clark tours FortisBC's existing Tilbury LNG facility before the groundbreaking for an expansion project in Delta, B.C., on October 21, 2014.)