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December 10th, 2012

New Brunswick Canada Shale

by Andrew Price, President & COO

As discussed in a previous blog, New England is facing a winter of natural gas supply constraints. This is hard to take knowing that other regions of the US are enjoying the considerable economic benefits of a boom in natural gas production. There may be light at the end of the proverbial tunnel in the form of New Brunswick shale. New Brunswick Canada has significant shale formations that have yet to be fully explored. Some believe that the Frederick Brook and Horton Bluff shale formations could be the next Marcellus, holding enormous amounts of natural gas that can be economically produced at low prices.

Today, physical pipeline bottlenecks prevent New England from receiving natural gas from the prolific Marcellus shale formation to our south in the Mid-Atlantic states. At the same time, natural gas supply from our northern neighbors – Nova Scotia and New Brunswick - has diminished to a trickle. Supply from the north is lower due to a confluence of physical infrastructure problems and chronic underperformance of the traditional producing wells in the region (e.g. the Sable Island and Deep Panuke offshore energy platforms).

Despite an inauspicious name for a company exploring the northeastern most parts of North America, Southwestern Energy Co. is bullish on natural gas production in this region. Southwestern is a well-established shale gas producer with one of the lowest cost structures in the industry. Southwestern holds rights to 2.5 million acres in New Brunswick (see the below map from a recent Southwestern presentation) and announced on December 4th that it may enter into one or more joint ventures in 2013 to help speed development. In November, New Brunswick’s energy minister, Craig Leonard, stated that the province could have 80 trillion cubic feet of natural gas, 15 million of which could be economically extracted with today’s technology. For perspective, consumption of natural gas in the US was about 24 trillion cubic feet in 2010. 

Of course the techniques and equipment used to extract natural gas from shale continue to improve at a rapid pace. Directional drilling and the much maligned process of hydraulic fracturing have been wildly successful in unlocking new natural gas and oil resources in the US. As in the US, however, fracking shale to produce natural gas is not without its critics in New Brunswick. There have been calls in the province for a moratorium on any shale gas development until more research is done and clear regulations are set for producers.

The government on New Brunswick has indicated that it will deliver a “blueprint” by spring of 2013 on how it will move forward with development of the shale resource. Exploration activities are expected to ramp up sometime next year. Until it is more fully explored it is impossible to know what kind of impact, if any, this shale resource could have on regional natural gas prices. If this shale play does turn into a prolific producer of natural gas, it could be very good news for the economies of New England – which would benefit from low cost natural gas - and New Brunswick – which would also benefit from a large new export commodity.  

 (Tags: New Bunswick, Canada, Natural Gas, Shale Gas, Fracking, Hydraulic Fracturing, New England, Frederick Brook, Horton Bluff)

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