WoodMac: Western Canadian liquids production on upward trajectory starting in 2016

Wood Mackenzie Ltd. believes the economics of core areas within shale plays in western Canada will yield comparable returns to key producing plays in the US Lower 48.

“Our western Canadian liquids production forecast is underpinned by an increasing commodity price environment and growing demand for oil sands diluent. We anticipate an upward trajectory in volumes beginning in 2016 and peaking in 2021 with the Montney, Duvernay, and Cardium formations driving volumes,” said Peter Argiris, WoodMac upstream analyst in Calgary.

While WoodMac’s liquids growth outlook remains positive, there is a potential downside to the forecast. “One factor that is currently front of mind is the supply-infrastructure constraints from the lighter end of the NGL stream,” Argiris said. “Propane supply is at historic levels and we have seen material price declines as a result. How this affects the remaining NGL stream (apart from diluent) from a pricing-infrastructure capacity perspective could have a negative impact on producer pricing and future activity going forward.”

While plays like the Montney and Duvernay will account for most of the anticipated production growth, operators are well positioned in numerous Canadian plays to create value at current prices.

The Duvernay largely will drive liquids growth through production of condensate and NGLs, Argiris said.

“Within our coverage universe, this is projected to grow from 27,000 b/d in 2015 to over 320,000 b/d in 2025,” he said. An additional surge of liquids production is anticipated to come from the Montney formation, where he expects production will double to more than 160,000 b/d in 2025.

From a natural gas perspective, a group of small and midsize independents has emerged that have low debt and also have gas producing assets with low breakeven economics. Economics for many of these assets are supported by associated liquids production, he said.

Contact Paula Dittrick at paulad@ogjonline.com.

*Paual Dittrick is editor of OGJ’s Unconventional Oil & Gas Report.

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