By Charles Lefebvre

Natural gas woes

Low prices affecting city’s natural gas department

Jul 10, 2019 | 5:34 PM

MEDICINE HAT, AB — The City of Medicine Hat’s natural gas division has not been immune to the downturn affecting natural gas.

Bradley Maynes, the commissioner of energy and utilities for Medicine Hat, notes the city is currently selling natural gas for a price of 29 cents per gigajoule.

“It’s a price that if you asked me three years ago if we would ever be charging 29 cents, I don’t think there would be many people who could’ve seen that day,” he said. “We’ve seen almost a complete collapse in our gas pricing over the last two to three years.

“Initially, we thought it was maybe short-term, or maybe just peculiar to the summer months with maintenance on the various transportation systems, but now it’s looking more systemic where there’s just so much gas supply available in the Western side of the province and into B.C., and we think that will have a material impact on southeastern Alberta over time and in the future.”

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Maynes says the city’s Natural Gas and Petroleum Resources Division (NGPR), which owns and sells natural gas in Medicine Hat, is projecting a loss of between $30 million and $40 million this year. In addition to a higher supply of natural gas, higher production costs are also resulting in lower prices.

“It’s an evolution of the industry, from a lot of wells producing a small amount of gas, to some very expensive and very prolific wells that are producing a lot of gas,” he said. “We believe that’s probably the most successful model going forward to have that type of operation. There’s less of an environmental footprint, less of a surface footprint on it, and you get a lot of gas coming out. It’s expensive to drill, but it’s offset by the fact that type of drilling is much more predictable and there isn’t the exploration risks.”

Maynes adds NGPR is doing whatever it takes to reduce its losses.

“We’ve divested of a significant portion of our natural gas resources back in 2017,” he said, referring to a sale of resources in Saskatchewan. “In hindsight, that was for us a very strong move, and today, we’re happy that deal was done. In terms of new drilling, there just isn’t enough money currently in it, there isn’t enough economics to encourage that drilling, so we can’t see new activity coming out of this.”

Maynes later added, “We very much value the bottom line. We are doing everything we can to address the situation. We certainly aren’t sitting back and just hoping that it’s going to change. We realize we have an obligation to do what we need to do to ensure the burden on the residents is a minimal as possible.”

The Alberta government recently announced tax relief for shallow natural gas producers and Maynes says it’s something they’re exploring. The province would allow eligible municipalities to reduce industrial property taxes on shallow gas wells by 35 per cent for the 2019 tax year.

If they were able to do this, Maynes says it would save the city between $250,000 and $400,000 this year.