CERI Optimistic Canadian Suppliers Will Meet Demand, Fill Pipes
Canadians are wasting no time making sure production capacity
keeps up with increases in demand for natural gas that pipeline
projects are expected to generate over the next two years,
according to an annual deliverability survey released last week by
the Canadian Energy Research Institute. Not even this year's 30%
drop in oil prices hurt producer revenues and budgets enough to
slow down gas development.
"The timing appears very tight" for new supply to meet growing
demand and pipeline capacity, which will increase 1.1 Bcf/d by the
end of the year with expansions by Foothills-Northern Border and
TransCanada systems, and another 1.3 Bcf/d by fall of 2000 with the
Alliance Pipeline Project coming on line. But "the production
levels required to replace declining reserves and supply expanding
pipeline requirements can be achieved."
Overall, CERI reports Canadian oil and gas production investment
is dropping by 13%, C$1.75 billion (US$1.25 billion), to C$11.75
billion (US$8.4 billion) this year from its 1990s peak of C$13.5
billion (US$9.6 billion) during 1997. Spending on oil is headed
down this year by 28% to C$4.6 billion (US$3.3 billion). But, as
widely forecast by numerous Canadian agencies and analysts over the
past year, spending on gas is on the rise.
Despite widespread corporate budget-cutting, Canadian gas
development investment is holding firm and even increasing modestly
this year to C$7.1 billion (US$5 billion), the annual survey found.
"The 1998 shift towards natural gas investment is projected to
continue through 2000, when 61% of anticipated expenditures are
indicated as being gas-related."
CERI forecasts 4,725 successful western Canadian gas wells this
year, 4,973 in 1999 and 5,297 in 2000. The 1998 number is down
slightly from 4,855 in 1997, but expenditures and drilling depths
indicate a shift towards deeper, more prolific reserves in
northwestern Alberta and northeastern British Columbia from more
numerous but less productive wells farther east in plains regions.
The drilling predictions are less optimistic than in CERI's 1997
survey, when the industry canvass took place during a period of
strength in oil as well as gas prices. But the forecast continues
to anticipate record Canadian gas field activity levels.
CERI says its survey results, taking into account the
performance standards of western Canadian gas drilling, indicate
deliverability will increase by 5.1 Bcf/d over the 1997-2000
period. That represents a "robust" increase averaging 9%/year. But
such expansion is not unprecedented in Canada, where U.S. exports
have quadrupled to about 3 Tcf/year since the mid-1980s and total
production has nearly doubled to nudge 6 Tcf annually. The drilling
and production figures in CERI's projections are within a range
described as necessary to sustain the Canadian industry's role in
the North American market, in a report released a week ago by the
Canadian Gas Potential Committee. Both agencies are as close to
authoritative voices as anything Canada has on the hot topic of gas
productive capacity. CERI is a semi-official agency funded by
Canadian government and industry agencies, while the gas potential
committee is a volunteer think-tank of elder and recently-retired
gas community statesmen led by former National Energy Board
chairman Roland Priddle.
Among commercial analysts, observations of strong gas activity
in the teeth of revenue losses from weak oil prices are also
swinging opinion around to a view that deliverabiliity will at
least stay adequate. A new study by Ziff Energy Group debunks
earlier conventional wisdom among some rival analysts and producers
that western Canadian capacity is in danger of falling behind gas
demand. While reserving the full report for paying customers, the
Ziff organizations says its canvass of the gas community concludes
that overall, "there are no constraints on the Canadian drilling
industry's capacity to drill a much expanded number of gas wells."
Gordon Jaremko, Calgary