Despite the record natural gas well completions experienced last winter, Canada’s natural gas production — minus Ladyfern — appears to be on the decline, according to research by Lehman Brothers’ Oil & Gas unit. Total Canadian gas production year-to-date through April increased 2% above 2001. However, without the prolific Ladyfern find, year-to-date volumes would have been down about 2% from the same period and western Canadian production would be down 3%.

Lehman analysts Thomas R. Driscoll and Philip R. Skolnick predict that Canada’s gas production will fall even more. “Ladyfern could decline sharply later this year,” they wrote in their latest industry update. The research found that total natural gas production could continue to be hurt without another Ladyfern-size field. “The total field is expected to experience a one-time decline of up to 70% as early as this year. Additionally, production may not reach peak volumes of 785 MMcf/d.”

Natural gas well completions declined “sharply” in April 2002, and in the western part of Canada, analysts found well completions in April were down 14% from the same period a year ago. Despite those numbers, “this was the second most active April in the last seven years,” the analysts found.

The declines may lead to other problems in the long-term for Canada, said the analysts. Canadian gas demand increased slightly in the first quarter of the year. According to Statistics Canada, gas consumption in Canada was up 18 MMcf/d, or 0.2% in the first quarter of the year over the same period of 2001.

Rig utilization also continues to drop sharply, the Lehman analysts said. For the week ending May 21, gas rig use was down by 162 rigs, or 53% for the same period of 2001. “Reduced drilling should theoretically have a negative impact on production growth, unless another large Ladyfern-type field is discovered. However, we believe the odds of finding another field of this size is very low.”

The research cited Canadian Natural Resources as the only company currently drilling two Ladyfern look-alikes with plans to drill another one in the third quarter. “Results on the two exploration wells currently drilling could be known within a couple of months.”

As far as exports, the Lehman analysts also found that year-to-date they were down 7% over the same period a year ago. For the month of April, net exports declined 0.2 Bcf/d, or 2% year-over-year. The 2% decline, however, is smaller than the 10% declines in January and February 2002, as well as the 3% decline March, according to research. Through May 27, net exports were down about 0.4 Bcf/d, or 5% from April to stand at 8.8 Bcf/d. “This represents a 0.5 Bcf/d, or 5% decline over 2001.”

Natural gas storage also is at record levels for this time of year, the analysts found. On May 17, storage levels stood at 272 Bcf, about 97% higher than last year and 81 Bcf higher than the four-year average. The storage overhang is about 2% of 2001 total gas production.

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