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Low Canadian Production Could Limit Exports

Low Canadian Production Could Limit Exports

Despite record drilling and high gas prices, Canadian producers still are not managing to boost production. TransCanada Pipelines estimates Alberta field receipts were 2% lower than expected this winter and ended up being essentially flat with the 12.4 Bcf/d recorded in winter 1998-99.

The company attributed the setback primarily to the location of new wells in lower producing areas and continued steep decline rates of 22% or higher on average, 35% for new wells in the first year.

"In spite of significant Western Canada Sedimentary Basin well connections (6,200 wells in 1998 and 7,600 wells in 1999), a large percentage of gas connections have been in lower producing areas, hence the lower supply growth," TransCanada said in its latest Update.

Craig Yano, who compiles the pipeline company's western supply and market assessment, said the significant increase in drilling activity was concentrated in the southeastern quadrant of Alberta where there's an abundance of infrastructure and the resource base is easily and economically accessible. However, it's also the area where per well production is lowest by far. "They're shallow, inexpensive wells and you can make a profit on that because of the high gas prices. [Producers have avoided] going to the deeper more exploratory areas [in western Alberta], where you have to build more pipe, spend more money and have more risk... The increase in activity in the lower part of the province has lowered the initial production rate as a whole."

TransCanada expects production to remain flat to down slightly this summer because of the same trends. The company is projecting field receipts to average about 12.3 Bcf/d this summer, possibly less if the Alliance Pipeline goes into service early as expected and robs Nova Gas Transmission of some of its supply.

Lower supply this summer also is expected to put a real strain on storage. TransCanada estimates Alberta storage withdrawals will average 650 MMcf/d this winter compared to only 500 MMcf/d last winter, leaving about 100 Bcf (44% full) in storage by March 31.

"In order to fill storage next summer, an average rate of 580 MMcf/d would be required compared to 320 MMcf/d last summer, a significant challenge," the company noted. A lot will depend on where the market puts its limited supply - in storage or across the border, noted Yano. As more gas goes into storage, less will be available for export to the burgeoning U.S. gas market.

Given the tight supply situation this summer, according to one scenario, there will have to be a 350 MMcf/d decrease in deliveries across the Alberta border in order for storage to reach only 70% full by next winter. For Canadian storage to reach the average of 90% full, deliveries across the Alberta border would have to be cut by 560 MMcf/d this summer.

"The industry's ability to drill deeper, more expensive but higher productivity wells will be a key determinant of future supply growth in the basin," the company said. The key going into next year will be whether producers are able to translate the large number of gas well licenses in northwestern Alberta into actual production.

Rocco Canonica

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