While admitting that proliferating pipeline projects arecreating a tall order for marketers, the Canadian natural gascommunity is not only talking optimistically – it is acting onexpectations that its hopes for increased exports will come true.

As Vector Pipeline described a huge sales challenge in anapplication to the National Energy Board for construction of itsCanadian leg, two pillars of the production sector set a torridpace for adding supplies to fill the expanding transportation grid.

Vector, adding up all the pipeline space developing around theChicago trading hub, told the NEB there will be 5.9 Bcf/d more thanthe Midwest U.S. needs by 2000 – an amount approaching 75% of thecapacity on TransCanada PipeLines. About 2.3 Bcf, or 40% of thetotal, will be Canadian gas arriving via the almost-completedexpansion and extension of the Foothills-Northern Border system andAlliance Pipeline Project, now awaiting final NEB approval afterreceiving a clean environmental bill of health from Canadianauthorities. The Chicago rush is unaffected by a sharp cut thatTransCanada announced for the 1999 edition of its annual facilitiesadditions (please see story p.7). TransCanada lopped 59% off theexpansion budget by cutting the planned capacity additions down to108 MMcf/d.

As the pipeline projects come together, the Canadian industry israpidly gearing up to fill them. Amid flurries of announcements ofdrilling budgets shifting into gas and away from oil, Amoco CanadaPetroleum and Alberta Energy showed that the change is already wellunder way and set examples of how it can pay off.

Amoco reported completing the second-biggest well in Canadianhistory, a 70 MMcf/d producer drilled 15,800 feet into the prolificRocky Mountain foothills at Blackstone, 150 miles northwest ofCalgary. The only larger producer is another Amoco well in the samearea yielding 80 MMcf/d.

Amoco Canada president Greg Rich called the timing of thewhopper wells “perfect” because they “coincide with the anticipatedincrease in export pipeline capacity.” Being Canada’s top gasproducer is already paying off handsomely. Parent Amoco Corp.reported that stature let its wholly-owned Canadian arm buck theindustry trend to sharply lowered earnings due to poor oil prices.Amoco Canada netted US$107 million in first-half 1998, compared to$103 million in the same period last year. Canadian gas productionrose to 769 MMcf/d so far this year, compared to 749 MMcf/d a yearearlier. Prices for Canadian gas production averaged US$1.35/Mcf infirst-half 1998, up 20 cents since last year.

Alberta Energy likewise bucked the trend by reporting a doublingin 1998 second-quarter operations earnings (to C$5.3 million orUS$3.7 million), thanks to its stature as Canada’s sixth-ranked gasproducer. The company promptly announced a 100-well gas drillingcampaign on its prolific Suffield Block in southeastern Alberta,with president Gwyn Morgan declaring “the Canadian natural gasindustry will soon mark an historic milestone: unrestricted accessto North American markets.”

Vector, while not minimizing the challenge of finding homes forall the new deliveries headed for Chicago over the next two years,described the sales opportunities as no less large. The project,sponsored by Alliance part-owner IPL Energy and MCN Energy Group,says it is providing a natural and essential further link with itsproposal for a US$470 million line with initial capacity to move 1Bcf/d 350 miles beyond Chicago to the Dawn trading hub on theTransCanada system in southern Ontario. From Dawn, the gas can moveacross central Canada and into New England via a variety of routesincluding new export connections of TransCanada with the proposedMillennium Pipeline to the U.S. Atlantic seaboard.

The Vector partners suggest there will be ample markets for allthe gas in both Canada and south of the border, provided the righttransportation services are available.

After rising by an exceptionally strong rate that averaged 3.5%or 107.5 MMcf/d each year during 1995-96, the growth rate amongcurrent sources of central Canadian demand is expected to taperoff. The pace is forecast to stay at a healthy 2.1% until 2005 and1.6% in 2005-10. But pleasant surprises are rated as likely inOntario. Current gas demand forecasts do not count the “wild card”in Canadian gas demand, the forthcoming overhaul of electricitymarkets. Sharp increases in demand for gas as power-station fuelcould be generated – and sooner, rather than later – as a result ofopen markets for electricity combined with closure of nuclearplants, the NEB is told.

Although Ontario could replace some of its atomic power withimports from other provinces and the U.S., “there is a very realprospect that gas-fired generation will be required to replace aportion of the 4,560 MW of shut-down capacity. For example, ifgas-fired generation were to replace one-quarter of the shut-downcapacity (1,100 MW), this would result in an additional 240 MMcf/dof gas baseload requirements.”

Gordon Jaremko, Calgary

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