Canada natgas output seen rebounding

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Canadian natural gas production should rebound to previous volumes after the current slump as producers, prompted by high prices, pump money into deep and unconventional prospects, the head of the industry's main lobby group said on Tuesday.

The question is: how long will that take?

"There is no question that it's going to be unconventional, it's going to be further away and more expensive gas," CAPP President Pierre Alvarez told the Reuters Global Energy Summit.

"But if you look at the potential, especially on the unconventional side, we have barely, barely scratched the surface."

Last week, the National Energy Board said gas output in Canada -- the key supplier to the U.S. market -- is expected to be down by as much as 1 billion cubic feet a day this year versus 2007. It blamed the drop on a slowdown in drilling due to weak prices and uncertainty stemming from Alberta's royalty review.

Alvarez said drilling has already increased amid resurgent gas prices and industry buzz over such unconventional prospects as tight gas and shale gas in northeastern British Columbia.

Alberta spot natural gas jumped to C$10.08 a gigajoule on Tuesday for the first time since December 2005. It fetched C$6.53 12 months ago.

Gas futures climbed 2 percent on Tuesday to $12.221 per million British thermal units, up 55 percent from a year ago.

Despite surging prices, producers have yet to announce major increases to gas spending budgets. Alvarez attributed that to questions that remain over the impact of Alberta's new royalty regime on conventional mid-depth wells.

Earlier this year, the province announced royalty breaks for deep drilling, prompting some analysts to predict that firms with such prospects will put those wells back on the front-burner.

Canada's drilling industry last month increased its forecast for wells completed in 2008 by nearly a third to more than 18,000, citing renewed optimism over gas and oil prices.

It is not known how long it will take to boost production from early-stage shale and tight gas prospects, such as Horn River and Montney plants in British Columbia that have captured industry attention, Alvarez said.

"They are very remote, they're short of infrastructure, and so it's going to take awhile to get that back up. That being said, I think the royalty rules do have some attractive features with regards, especially, to shallow and unconventional gas in parts of Alberta," he said.

"So we are going to be down this year, but I think when you look beyond that, especially if prices stay north of $10, you will see a continued expansion of the focus on the gas story."

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Jeffrey Jones, editing by Phil Berlowitz, Leslie Gevirtz)