Profits in Canada’s gas extraction industry will be little changed in 2007, before taking off in 2008, according to a report from the Conference Board of Canada.

“A decline in production and lower prices led profits to tumble in 2006, and, with both prices and production expected to be flat this year, profits will not improve significantly in 2007,” said Michael Burt, senior economist. “But with gas prices beginning to rebound in 2008, profits are expected to pick up again.”

Industry profits fell by almost 25% from $12.7 billion in 2005 to $9.5 billion in 2006. With prices forecast to remain weak this year, profits are expected to stay flat. When natural gas prices begin to bounce back in 2008, profits are expected to surpass $14 billion.

Following a decline of 1.1% in 2006, natural gas production is expected to increase by only 0.2% this year. Production will then decline further in the coming years, as conventional gas production in Alberta steadily declines.

Competition for labour and materials is sharply increasing costs in Alberta’s energy sector. In 2006, total costs for extracting natural gas increased by 10.1%. Although cost pressures from labour and material costs will wane, growth in capital costs will remain significant over the next four years.

This is the first release of the Conference Board’s new Canadian Industrial Outlook: Canada’s Gas Extraction Industry. Published twice a year, the content for this report was part of the Board’s broader oil and gas industry report.