Calima Energy (ASX:CE1), one of Australia’s only companies to have a stake in Canada’s hottest energy province, The Montney Formation, is anticipating a A$72 billion uplift in infrastructure spending, tipped to dramatically increase local gas prices.
Infrastructure spending on pipeline upgrades, expansions and new infrastructure, are expected to deliver more than 8 bcf per day of new gas pipeline capacity, with short-term developments over the next two-to-three years adding 3.8-4.3 bcf/d of capacity.
Gas infrastructure available to Montney producers is expected to double in capacity to approximately 15 bcf/d over the next 5-6 years.
The massive infrastructure spend will alleviate competition from Montney producers, which are currently vying for pipeline capacity, which sees the Western Canadian gas benchmark (AECO Hub) trading at around a 60% discount to the US benchmark (Henry Hub).
Calima Energy (ASX:CE1)
According to Calima’s review: “Due to the highly productive nature of the Montney, the rate of gas production has recently been increasing by more than 20% year-on-year and as a result production has run ahead of the capacity of the pipeline infrastructure”.
Longer term projects including LNG terminals and associated pipelines are projected to add new Asian export markets to the Western Canadian oil play, which currently supplies approximately 40 percent of Canada’s total gas production.
Shell and partners are scheduled to reach FID on a C$40 billion (A$41 billion), 13-26mtpa LNG project in October 2018. This project alone will consume an additional 2.5 bcf/d when operational with the capacity to expand up to 5 bcf/d.
Calima believes the LNG export bump will be coupled with increasing production from the nearby Canadian oil sands, which will have a knock-on effect to Montney producers. Condensate is used as a a diluent for more efficient transportation of heavy oil, while gas is commonly used to generate heat, which is a necessary step in the oil sands recovery process.
The infrastructure boon is set to significantly benefit Calima, with the energy company set to spud a maiden test well later this year, signifying its transition from explorer to producer.
Calima Energy managing director Alan Stein said:
Calima is fast approaching the point where it will be drilling its first wells on the Calima Lands and it was therefore considered prudent to review the factors affecting the market both in terms of price and ease of access to infrastructure.
The analysis confirms our belief that the introduction of new pipeline capacity and new markets should have a positive impact on regional gas prices and the increased demand for diluant by the heavy oil producers should result in premium pricing for Montney condensate being maintained in the future,” he said.