Supply Rises Slightly in Canada, But Drilling is Flat
A preliminary look at the Canadian supply situation prior to the
winter heating season shows a greater amount of field gas available
this year compared to last but less gas in storage and less gas on
the way, according to officials at TransCanada Pipelines.
Meanwhile, market demand continues to be strong. The bottom line,
said Al Jamal, manager of TransCanada's Western Canadian
Sedimentary Basin Strategic Assessment, is "the supply-demand
balance is still tightening up" and will continue to do so given a
normal or colder than normal winter and a continuation of flat
According to TransCanada's latest general assessment, there is
expected to be an average of 200 MMcf/d more gas production on
TransCanada's Alberta system and a total of about 300 MMcf/d more
gas coming from the entire Western Canadian Sedimentary Basin this
gas-year (November 1998-October 1999) compared to the prior period.
But TransCanada officials still expect relative supply tightness.
Alberta field receipts have averaged 12.5 Bcf/d compared to 12.3
Bcf/d during the last gas year, said Jamal. In addition, during the
last gas-year in Alberta there were approximately 5,500 new gas
wells connected to TransCanada's provincial pipeline, formerly
Nova. This year the company is expecting about 6,300 new
connections. There also have been sharp increases in gas well
connections in Saskatchewan and British Columbia. In total, the
Western Canadian Sedimentary Basin has about 7,300 total new gas
wells that have been connected to pipelines compared to about 6,400
wells connected over the prior period, said Craig Yano, senior
supply analyst at TransCanada.
"We're expecting that there will be some increase in production
because the number of wells that have been tied in or connected
this year are much higher than they were last year. However, we
don't expect a huge increase in production because a lot of those
gas wells being tied in are shallow gas wells in the southeastern
part of the province," said Yano. "They are low productivity wells
that are being tied in."
And despite the slight increase in production, strong market
demand this summer has reduced storage injections to about 290
MMcf/d on average compared to about 500 MMcf/d last summer. As a
result, Jamal said he expects storage to enter winter a little more
than 90% full compared to 100% full last year.
The mild temperatures really helped producers through last
winter, he said, but a more normal winter is likely to test the
system this year. "Last fall we were questioning whether we were
going to have enough supply for market demand and storage..... And
it will be touch and go whether we will have full storage this
year. I think it will be dependent on the pricing and the draw of
supply to eastern Canada where the storage situation is not as high
as [in Alberta] --- at around 70% full at the eastern end now
compared to 85% last year at this time."
Looking forward, the supply situation actually is expected to
grow even tighter because drilling activity in Alberta is down.
Over the last few years about 4,200 gas wells per year have been
drilled on average. This year the number of wells expected to be
drilled in the province is only 3,900. Because of a slight drilling
increase in Saskatchewan and British Columbia, gas drilling in the
entire basin is expected to be about flat this year compared to the
prior two years at 5,000 total gas wells drilled, said Yano.
"The big question mark is the size of the decline in U.S. [gas]
production. We hear that it could be as high as 7% or up to 3
Bcf/d. And there may be a normal or colder than normal winter,
which means heavy draws from storage and field production," said
Jamal. He added storage is going to be used more and more as a base
load source of supply rather than a peak supplement to field
production. "Next summer, I think we'll be in a lower storage
position than this summer, which again will put significant
pressure on prices, we think."