The National Energy Board has put out a new signal that naturalgas supplies will remain tight by cutting in half its growthprojections for western Canadian production capacity after a reviewof recent performance.

In the latest in its series of annual energy market assessmentreports, the NEB predicts that “deliverability” will rise by 1.1Bcf/d or 7% to 17.5 billion by 2002. A year ago, the boardprojected a 2.2 Bcf/d increase in production. “The previous reportwas based on the initial productivity data available at the time.Moreover, it was assumed that these rates would remain stablethroughout the forecast period,” the NEB said.

“In fact, recent production data show that there has been asubstantial decrease in initial productivity rates for wells acrossthe Western Canada Sedimentary Basin. The initial [productivity]for wells connected in 1999 [is] nearly 40% lower than for wellsconnected in 1996.” The board’s report is the most thoroughdocumentation yet of a trend noted by a wide range of industryobservers ranging from financial analysts to the Canadian EnergyResearch Institute. The lowered expectations result from a patterncaused by the 1977-99 oil slump, which in Canada affected drillingfor all targets. On the gas front, the industry switched tomaintaining production at the lowest possible costs byconcentrating on shallow targets in prairie regions where wells canbe drilled in less than a day.

The NEB estimates that if the cost-cutting pattern continues, itwill take 8,100 western Canadian well completions in 2001 and 8,900in 2002 even to achieve the projected 1.1 Bcf/d increase indeliverability. That forecast incorporates at least the beginningsof a shift back to costlier, deeper but much more prolific wells inthe western part of the production basin along the foothills of theRocky Mountains, in Alberta and northeastern British Columbia.

But the board adds that the pattern shows signs of changing andthe consensus forecast confirmed by its latest data could be muchtoo pessimistic. The NEB acknowledges that one of the leadingindustry forecasters, the Petroleum Services Association of Canada,expects high prices and expanded pipeline capacity to acceleratethe drilling pace to 9,800 western gas well completions. The boardsays deliverability will increase by 2.4 Bcf/d or 15% to 18.8 Bcf/dif the PSAC turns out to be right. The organization rates themention by the NEB because it is widely regarded as the mostconservative, reliable forecaster of oilfield performance — areputation earned with thorough tracking of drilling because itsmembers’ livelihoods depend on it.

Gordon Jaremko, Calgary

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