The Horn River Shale Basin

Keith Kohl

Written By Keith Kohl

Posted October 26, 2011

Editor’s Note: For more information on the topic, check out our updated resource page on natural gas companies

It’s one of the largest natural gas deposits in North America.

Yet most people have never even heard of it…

I’ll admit that I had nearly forgotten its potential — a mistake I won’t make again.

Fact is the entire play has been overshadowed by the massive shale boom in the United States, as U.S. shale plays have been dominating the headlines lately.

But as we’re all aware by now (or should be), Alberta is an absolute powerhouse in North American energy production.

For only the second time in history, the province’s annual land sale revenue topped $3 billion. Production in the Alberta oil sands will continue to grow…

But a closer look reveals Alberta’s current natural gas outlook is actually a different story altogether.

In the last ten years, Alberta’s natural gas production has declined nearly 40%.

This is concerning. Alberta currently accounts for more than 70% of Canada’s entire marketable gas production. And the same situation is unfolding across most of Western Canada…

Conventional gas production in the Western Canadian Sedimentary Basin (which holds a staggering amount of Canadian oil and gas reserves) peaked years ago. That area alone makes up more than 98% of Canada’s gas production.

Canada is suffering from the pains of peak natural gas, a reality from which we’re only now starting to feel the effects.

Twenty-five years ago, Canada held approximately 99.2 trillion cubic feet of natural gas reserves. Today, that number has dropped to nearly 60 trillion cubic feet.

And unfortunately, the future doesn’t look much brighter for Alberta. The province’s gas production is expected to fall to 8 Bcf/day by 2015. In 2006, Alberta was producing 12 Bcf per day.

It’s time for a change, that much is certain. But we won’t find the solution to peak nat gas beneath Alberta soil.

Instead, we’ll have to look slightly west…

The Horn River Basin

You see, the Horn River Basin will soon find itself in the global spotlight.

Recent events will have investors flocking to northeastern British Columbia. It’s also beginning to attract serious attention overseas, particularly from China.

Much like the shale gas plays in the United States, the Horn River Basin started heating up in 2007. Success in the Barnett shale in Texas paved the way for the shale boom that followed.

Even so, few people know about North America’s third-largest natural gas deposit.

There’s an estimated 96 TCF of marketable gas locked in the formation. Only the Marcellus and Haynesville can boast more.

And herein lays the reason the Horn River Basin is relatively unheard of…

We’ve talked endlessly about the supply glut plaguing the North American gas market.

Since natural gas is transported through pipelines (for the most part), markets are regional.

In other words, unconventional production from the north end of British Columbia would have to travel a good distance to reach the United States. And as we just mentioned, the U.S. has no shortage of domestic supply.

Time and again, we’ve talked about a project that is capable of exporting Canadian gas across the Pacific to tap Asian markets.

When the Kitimat project was given the green light, British Columbia was given a second chance at fame…

This is the secret to the Horn River Basin.

Within a few short years, BC producers will be able to tap into international gas markets. The Kitimat LNG export terminal will offer them that opportunity.

And it couldn’t have come at a better time.

British Columbia is one of the few areas in Canada where natural gas production hasn’t peaked!

Since 2001, BC’s gas production has nearly doubled. At this pace, BC will quickly replace Alberta as the country’s leading natural gas producer.

But we’re not the only investors paying attention to the ways to take advantage of this energy shift…

China’s Next Target

The secret of the Horn River Basin is out — and China is ready to pounce.

We’ve watched the Chinese scoop up Canadian assets time and time again. Sinopec’s $2.1 billion takeover of Daylight Energy was just another example of China’s energy greed.

Now they have another target in sight.

And given the fact that energy stocks have been in a slump for the better part of 2011, this particular opportunity is ripe for the picking…

With about 300,000 net acres in BC and a stake in the Long Lake oil sands project, Nexen Inc. (NXY) has two of China’s favorite things: oil sands and shale gas.

We already know how the Chinese feel about the Canadian oil sands. CNOOC spent over $2 billion for Nexen’s partner in the Long Lake oil sands project, Opti Canada.

Nexen shares have fallen more than 40% from its 52-week highs — and the company is a perfect match for China’s needs.

If you’re waiting for the natural gas supply glut to ease before jumping into Canada’s unconventional gas plays, you might want to re-think your strategy…

Unless, of course, you plan on letting the Chinese beat you to their next prized natural gas investment.

Until next time,

kpk sig

Keith Kohl
Editor, Energy and Capital

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