Drillers in Canada Shift to Gas as Trade War Hammers Oil Prices

Drillers in Canada’s energy heartland of Alberta are shifting their focus to natural gas as the global trade war and an OPEC+ plan to increase output hammer crude prices.

The number of licenses for new gas wells issued in the first quarter rose 26% from the previous quarter to 308, the highest quarterly total in two years, Alberta Energy Regulator data show. For oil wells, the number fell 24% to 293, the lowest since 2021. Licenses for bitumen wells fell by six to 37.

Canada is the world’s fourth-largest oil producer and the fifth-largest gas producer, according to the International Energy Agency. Nearly all of its oil and much of its gas is exported to the US.

West Texas Intermediate oil prices have fallen by about 20, to near $63 a barrel, since US President Donald Trump was inaugurated and started threatening tariffs on trading partners. In recent weeks, OPEC and its allies added to the headwinds by surprising the market with plans to revive curtailed production earlier and faster than expected. On top of that, Heavy Western Canadian Select crude typically trades at a discount to WTI, currently about $9.65 a barrel.

By contrast, natural gas in Canada has risen to around C$2 per gigajoule from about C$1.50 during that time as the country’s first liquefied natural gas export plant prepares to start operation later this year on the British Columbia coast.

The pricing swings have producers in the Montney formation, which straddles the border of Alberta and British Columbia, shifting toward more natural gas-rich areas and away from pure oil-producing regions, Trevor Rix, Canadian oil and gas research team leader for Enverus, said in an interview.

The drillers aren’t just seeking natural gas, but rather the associated liquids such as condensate, which is blended with oil sands bitumen to allow it to flow through pipelines and commands stronger pricing than Canadian crude, Rix said. Oil sands production is growing after the start of the expanded Trans Mountain pipeline last year.

“We think condensate is a good place to be in the next few years as oil sands diluent demand ramps up,” Rix said.

The trend may be playing out in the US as well, where Precision Drilling Corp. — a drilling rig contractor operating in Canada, the US and the Middle East — is seeing interest in gas-directed drilling in the Haynesville formation and Marcellus, Chief Executive Officer Kevin Neveu said on an earnings call last week.

“Our customers remain cautious regarding oil-directed drilling,” he said.

US Energy Secretary Chris Wright said at an energy conference in Oklahoma City last week that oil at $50 a barrel wouldn’t be sustainable for American producers.

In Alberta, Canadian Natural Resources Ltd.’s oil and gas licenses rose to 88, the highest on a quarterly basis in more than a decade, with 59 targeting gas versus 29 for oil. ARC Resources Ltd. was second with 54.