New reserves appraisals go far toward explaining persistentstrength in Canadian natural gas prices. Surpluses are disappearingas production and exports to the United States grow.

A trend towards tightening supplies is strong in Alberta, sourceof 80% of Canadian production. In an annual review that perenniallyarrives late due to exhaustive counting, the Alberta Energy &ampUtilities Board reported reserves additions, largely by more than2,000 development wells, were 4.3 Tcf that replaced 91% ofproduction in 1997. But new appraisals of supplies on hand cut theknown inventory of remaining reserves accepted as proven by 3.3 Tcfto 45.6 Tcf.

A continuing review and “data base cleanup” of old counts ofunconnected supplies cut the 1997 Alberta reserve replacement rateto only 26%. The review, launched three years ago in cooperationwith the National Energy Board, looks hard at inventories of cappedor suspended reserves that have been carried as reserves awaitingproduction on industry and government books for up to 40 years. Oldwells are being dropped off the books due to technical problemssuch as remoteness from gathering pipelines and lack of processingcapacity. But there is also new official recognition of otherbusiness purposes that were served by old reserve counting habits.Review reports have disclosed that, under the Alberta system ofgovernment resource ownership and leasing, “these wells are oftenused to secure and maintain land tenure, as a capped well carriesminimal financial obligation for the operators.”

The EUB’s report coincided with a mid-June development thatdelighted a production industry contending with chaotic and fallingoil prices. After holding steady compared to oil for most of thespring, Canadian gas prices rose by 12% to C$1.83 (US$1.30) pergigajoule at the AECO-C trading hub in southeastern Alberta. Atcurrent production rates, Alberta still has a 10-year gas supplyeven after the cut in estimates of unconnected reserves.

The EUB voiced no concern that the province might not haveenough gas to fill new export pipeline capacity that starts openingup this fall with completion of the Foothills-Northern Borderexpansion-extension project to Chicago and annual facilitiesadditions to the TransCanada system. The industry achieved its 3.6Tcf of real reserves additions in 1997 even though the preferredtarget of development drilling was oil by a two-to-one margin overgas for the year. EUB members and industry specialists have pointedto previous rapid changes of drilling targets, and there has been abarrage of announcements by companies switching their programs togas.

A new report by the government- and industry-financed CanadianEnergy Research Institute, echoing private consultants such asSproule Associates in supporting evidence for TransCanadafacilities applications, forecasts steady growth in Canadianproduction. CERI figures exports to the United States, currently52% of Canadian output, can rise as much as 43% to 4.3 Tcf per yearby 2015 to keep 14-15% of the American market. Total Canadianproduction is forecast to grow at an annual average rate of 2%.

Gordon Jaremko, Calgary

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.