13 March 2014

No Gas No Glory

Chris Amy writes:*

In early 2000, the Ladyfern natural gas field in Northern British Columbia had the potential to become one of BC’s top natural gas producers for many years to come. But only 3 years after production commenced, many wells had dried up and production was rapidly declining. So what went wrong?

A land rush triggered by leaked resource information lead to overspending in the millions on land claims, infrastructure, transportation, labour, and lawsuits.

Due to an overabundance of greed and lack of regulation and planning, competing companies raced to out produce each other while knowing full well that such high speed gas extraction from the same source could reduce long term recovery by “damaging” the gas reservoir.

By 2003, production had decreased by 40% due in large part to over exploitation of the deposit. A few years more and the gas had all but run out.

To top it all off, the break neck speed at which gas was produced from the Ladyfern gas field lead to a large oversupply of natural gas in the market. This in turn significantly reduced natural gas prices, cut into corporate profits and destabilized the market.

It didn't have to happen this way. Even if the resource information had still been leaked and there were no gas production regulations in place, the competing companies could have worked together, formed a cooperative of sorts, and ensured that gas was produced at a mutually beneficial rate, both to maximize the deposits’ potential, and to reduce the effects of oversupply on the market.

Bottom Line: In the short run, stronger regulations and more oversight are needed for sustainable development of large natural gas deposits.  In the long run, the “winner takes all” culture within the industry needs to be addressed, and modified to allow mutually beneficial collaboration between competitors.

* These guest posts are from students in my resource economics class at Simon Fraser University. Please leave feedback on their logic, ideas and style and suggestions of how to improve.

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