Canadian production is expected to fall short of filling itsexpanded export pipeline capacity by 1.5 Bcf/d in 2001 and 1 Bcf/din 2002, according to the Canadian Energy Research Institute’s(CERI) annual deliverability survey.

Those results were revealed at the same time the CanadianAssociation of Oilwell Drilling Contractors launched a nation-widepersonnel recruitment drive to fill what it described as an”immediate need” for 3,000 field hands. CAODC president Don Herringsaid “our 90 member companies, which run more than 1,500 (drillingand well-servicing) rigs, are facing a severe shortage. . . ..thedemand for oil and gas is high enough that most of the fleet willbe in the field this winter and we need to recruit people rightaway.”

The one thing that is not short is demand. Cold snaps andforecasts of a nasty winter sent spot prices in Alberta, source of80% of Canadian production, up to a record C$8.02 (US$5.50) perMCf. Canadian analysts predicted spikes to C$10 (US$6.70) if areturn to normal winter weather makes heating-season realities sinkin on the markets.

ERI made the predictions of export shortfalls despite producers’declared investment intentions to fill up the space resulting fromexpansions of the TransCanada and Foothills-Northern Border systemsplus Alliance Pipeline, which expects to go into full commercialoperation Nov. 30. While western Canadian pipeline capacity willhit 19 Bcf/d, CERI’s models anticipate production will average 16.8Bcf/d this year, 17.5 Bcf/d in 2001 and 18 Bcf/d in 2002.Deliveries to the U.S. are already approaching nine Bcf/d, and mostof Alliance’s 1.5-Bcf-daily capacity is dedicated to exports.

“The existence of excess pipeline capacity through 2002 meansthat western Canada producers can expect to remain connected tooverall North American pricing trends for at least several years.With these trends generally supporting strong prices, producer cashflow is likely to remain well above what the industry canefficiently invest in exploration and development drilling inwestern Canada,” CERI said.

And, there is more to the lag than shortages of labor, thereport suggested. The institute pointed to continued reliance onshallow drilling for low-cost but rapidly-depleted wells insouthern Alberta and Saskatchewan, as well as lengthy periods oftime and substantially higher spending to generate bigger prospectsalong the foothills of the Rocky Mountains in western Alberta andnortheastern British Columbia.

High prices have also revived investment in oil. Of a collectiveC$5.7-billion (US$4-billion), 54% increase in Canadian producercapital spending this year, CERI calculates that 69% went into oilprojects. While the institute says corporate budget announcementssince its survey was done indicate collective spending is going upanother 18%, it projects that oil will continue to increase itsshare so long as its prices remain high.

Unless markets change again, the gas share of Canadian producerinvestment is projected to fall to 54% in 2002 from about 70%during the 1997-99 period of poor oil prices. Barring fasteracceleration of deeper, more remote drilling than has happened todate, CERI projected a continued focus on shallow drilling willrequire more than 10,000 Canadian gas well completions by 2002 inorder to keep up with the market. “It may very well exceed thecapabilities of the industry to identify enough prospects, mobilizeenough equipment and skilled personnel to drill the targets, andeven to obtain the land and regulatory approvals necessary toundertake the work.” The flood of activity “may also exacerbatetensions between landowners and industry,” which are alreadyrunning high because a 30% and growing portion of Canadian outputis “sour” or laced with hazardous hydrogen-sulphide.

CERI suggested those intent on tapping Alaska gas are on theright track in acting as if the Arctic’s turn has finally come.”The availability of additional capital may encourage more of theindustry to undertake activities involving higher risks and rewardsas well as longer-term payback.” Watch for “projects in the north,offshore as well as exploration of untried areas or formations inwestern Canada,” the institute suggested.

Gordon Jaremko, Calgary

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