Western Canadian natural gas producers trying to ramp up new gas supplies have been significantly impacted because of escalating finding and development (F&D) costs as well as rising operating costs, according to an analysis by Ziff Energy.
Ziff surveyed 77 Canadian producers and energy trusts for its "Western Canada 22nd Reserve Replacement Cost Study."
According to the analysis, the average "full-cycle" cost of ramping up new gas supplies, including a 15% return on F&D costs before tax, more than doubled to C$8.30/Mcf in 2007 from 2000. Full-cycle costs in 2008 are forecast to be C$9.00/Mcf, which would be 20% higher than the C$7.50 received by producers in January at the Alberta Gate, and which would be well above the 2009 gas futures forecast.
In the last three years the gas price Canadian producers receive has generally been lower than the full-cycle cost for new gas, so producers will earn lower or no return on this new gas, the Ziff analysis found.
Reserve replacement costs were reviewed for several gas "strategy regions," which Ziff defines as the Canadian Foothills, tight gas, coalbed methane (CBM) and five conventional oil strategies. The costs were analyzed based on similar geological plays, depths and development characteristics. Ziff found:
More information on the analysis is available at www.ziffenergy.com.
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