Despite falling this year to depths not seen in a decade, profits in the natural-gas industry will rise more than fivefold by 2013, beating record levels achieved in the boom year of 2005, the Conference Board of Canada said in a report released Friday.
Meanwhile, collapsing prices, rising costs and tight credit will cut earnings in Canada's natural gas sector by more than half this year to $2.3 billion, the board said in its quarterly report on the sector.
The board also predicts total output of marketable gas will fall five per cent this year -- after already falling by 5.2 per cent in 2008 -- and continue to fall over the life of the forecast period to 2013.
New and promising sources identified in unconventional shale-gas formations won't offset the declines as they only currently represent a small portion of total output and face their own development issues, the report said.
"So much has changed for the natural gas industry in just one year," said board economist Todd Crawford. "Last year, revenues more than doubled over the first six months as gas prices skyrocketed. Now, low prices and the tough credit conditions have created a perfect storm that sent drilling activity in Canada tumbling this year."
Despite dramatic declines in drilling activity brought on by the economic downturn, North American inventories have continued to rise, thanks in part to imports of liquefied natural gas from overseas, the report said.
But profit growth will begin to rebound next year as economic recovery lifts demand and prices from current levels of $3.36 per thousand cubic feet on the Canadian spot market, Crawford said.
This will happen despite costs that will quickly rise from currently depressed levels as the gas and oil industries begin competing more aggressively for materials and labour.
The board forecasts prices will rise in Canada to $8.92 by 2013. Prices have spiked up in recent days in Canada and the U.S., where it was trading Friday at $3.56 US on the New York Mercantile Exchange.
"Therefore, despite the fact that the industry will see lower production throughout the forecast, profits will eventually reach $12.5 billion, consistent with the boom year of 2005," the board said.
