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CALGARY, Alberta (Reuters) - The association representing Canadian energy service companies cut its 2012 drilling forecast by 11 percent on Friday, citing a tight labor supply and chronically weak natural gas prices that have prompted explorers to rein in spending.
The tempered forecast from the Petroleum Services Association of Canada dims what had previously been a bright outlook for industry activity and provides further evidence that the continent-wide glut of natural gas is forcing the industry to rethink many plans.
The Petroleum Services Association of Canada said it now expects 13,350 wells to be drilled across the country this year, a drop of 1,700 from its last forecast in November.
"Due to skilled labor shortages, warm weather hampering the use of heavy equipment, weak gas prices related to oversupply and the ongoing uncertainty created by the European economic debt crisis, we are seeing restricted capacity across the board," Mark Salkeld, the group's chief executive, said in a statement.
Canadian natural gas prices are nearly 40 percent below year-earlier levels as the market deals with the impact of warn weather on winter demand as well as surging production across the continent from shale gas deposits.
Even with advancing drilling technology, several producers have said it takes prices of at least $3.50-$4 per million British thermal units to profitably develop gas plays. Gas on the New York Mercantile Exchange sold for about $2.60 per mmBtu on Friday.
A number of companies have signaled they are cutting spending on gas prospects and even shutting off some production to cope with the conditions. This week, ConocoPhillips (COP.N) was the latest to give word of shut-in output, bringing the volume of announced cuts to about 600 million cubic feet a day.
PSAC said it expects natural gas to average around C$3.25 ($3.25) per mmBtu this year, and West Texas Intermediate oil to average $90 a barrel. The group had previously forecast a 10 percent increase in wells drilled across the country, based on strong crude prices as well as an industry push to develop liquids-rich gas, which is priced against oil.
That search, which means deeper and more complex wells, is expected to continue, it said.
Reporting by Jeffrey Jones; Editing by Peter Galloway