A five-fold increase in drilling discoveries will eventually beneeded if Canadian producers are to keep up with expanded marketsfor their natural gas, according to a just-completed supply reviewthat comes virtually from the horse’s mouth.

The tall order emerged from a review by the Canadian GasPotential Committee, which is largely composed of retiredregulatory and producing industry executives and seniorconsultants. Before publication the results are submitted to peersat E&ampP companies for cross-checking.

The committee – led by Roland Priddle, retired chairman of theNational Energy Board – stressed that its findings do not amount toan alarmist warning that Canada is about to run short of gas.Instead, the need for more drilling successes is a natural resultof historical and technical trends, reported consultant RobertMeneley.

Aggressive marketers and expanding pipelines have expandedoutlets and demand for Canadian gas at the same time as theproduction sector has begun to run out of big, easy finds.

In the modern western Canadian gas industry’s first half-centurysince the Second World War, 59% of production has come from earlybonanza discoveries of 341 giant “class 1” pools exceeding 53 Bcfof reserves each and holding a total of nearly 84 Tcf of marketablesupplies. The committee’s analysis of 82 gas-bearing geologicalformations or “plays” suggests that only 120 such giants remain tobe discovered, will be tougher to find and and will yield just 16Tcf.

To keep up with demand approaching or exceeding six Tcf per yearin the decades ahead, the committee says the Canadian industry willhave to turn to much smaller “class 3” pools. They have less than11 Bcf of marketable gas each. There are so many of them that theycould yield about 46 Tcf of marketable reserves. But the class 3finds are so small that it will take 190,000 discoveries to taptheir full potential.

The gas committee calculates it will take up to 5,000discoveries of western Canadian gas pools per year to keep theindustry running at the accelerated pace hit in the late 1990s, apace expected to increase again in the early 2000s due to pipelineexpansions. Exports continue to drive the growth, with sales to theUnited States that now nudge three Tcf per year due to jump againto fill a TransCanada expansion and the expansion-extension of theFoothills-Northern Border system that will add about 1.1 Bcf indaily capacity this heating season then the 1.3-Bcf-per-dayAlliance Pipeline Project starting in late 2000.

Meneley, a veteran of 43 years in the industry, said “petroleumcompanies will have to drill many more gas wells each year inwestern Canada.”

The gas potential committee’s findings show the requirement forincreased activity is already being registered by drilling results.While successes are still plentiful, they are becoming smaller.Since the 1970s, when newly discovered gas pools averaged aboutfour Bcf of marketable reserves, the finds have tapered off in sizeto about one Bcf each.

The committee makes no estimate of just how many more wells willbe required in the future. “There is not a one-to-one relationshipbetween numbers of wells and discoveries,” Meneley said.

So far, Canadian production companies have consistently achievedbig bangs in gas results for their drilling bucks. Over the past 10years, the western Canadian industry has achieved an annual averageof about 1,000 discoveries while drilling 500 gas-explorationwells.

Meneley explained that new finds of gas pools are still oftenmade by development wells aiming only to extend known reserves, andas an unintended byproduct of oil drilling. Canadian gas wells alsooften achieve multiple discoveries by tapping several new poolsstacked at different depths in various geological layers.

Committee member Richard Procter, retired chief of the oil andgas arm of the Geological Survey of Canada, said “this is not amessage that we’re running out of gas. The message is, the industryis changing.” He said the changes should include tappingastronomical reserves of gas in coal seams that carpet the CanadianWest – and sooner rather than later, in the interests of supplysecurity and Canada’s reputation for reliability. The commiteeestimates the western Canadian coalbed methane total at 135-261Tcf. The National Energy Board recognizes 8Tcf of coalbed methaneas economic under current prices and technology.

Procter said “one concern we have is that we don’t seesufficient activity in coalbed methane.” A specialist in the field,Ken Sinclair, observed that coal seams have been entered by about10% of the 300,000 conventional wells drilled to date in westernCanada. Many are expected to yield coalbed methane if newtechnology being developed by a consortium of companies andgovernment agencies is used. But the Canadian industry has onlyspent about C$30 million (US$21 million) on research into coalbedmethane and produces none. Sinclair pointed out that in the UnitedStates, where conventional gas supplies began dwindling long ago,about $4 billion has been poured into coalbed methane and itaccounts for 8% of production.

Marketers and industry analysts, meanwhile, suggest thecommittee’s report confirms a happy outlook for prices for Canadiangas. All the findings point to a tightening supply, especially asthe new pipeline capacity opens up. Soft oil prices are forecast tocontribute to tightening gas supplies by restricting revenuesavailable for switching drilling targets.

Producers and traders are betting heavily now on price increasesin the coming heating season. The Calgary investment house ofPeters &amp Co., a leading specialist in the energy sector,observes that early fall has been marked by sharp increases in cashgas prices in Alberta. Between Oct. 7 and Oct. 14, prices at theAECO C trading hub jumped C$0.39 (US$0.27) per Mcf to C$2.80(US$2).

The analysts say the Canadian price increases are beinggenerated by traders and producers taking advantage of an arbitrageopportunity to buy now for storage, then sell at higher pricesexpected to develop in the heating season. An estimated 25 Bcf ofstorage capacity remained available as of mid-October.

Gordon Jaremko, Calgary

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