After stumbling last heating season Canadian natural-gas exports show signs of getting back on their feet, but when they will resume growing — or even whether they can — remains an open question. For the first time since the onset of energy deregulation and free trade, exports fell in the opening half of the current natural-gas contract year ending Oct. 31, according to records of the National Energy Board.

Strengthening performance in the latter part of the period limited the shrinkage. But deliveries to the United States were still down for the six months of Nov. 1 though April 30 this year to 1.856 Tcf compared to 1.984 Tcf during the same period of 2000-01.

The damage happened in the first-quarter of the contract year, when export volumes dropped 12.2%, prices fell by 62% and revenue dropped by 66.4%. For the first half of 2001-02 after a partial recovery in the second quarter, gas export volumes receded by 6.4%, prices dropped by 58.4% and revenues went down by 60.9%.

Average prices fetched by Canadian gas at the border retreated to US$2.65 per MMBtu in first-half 2001-02 from US$6.39 a year earlier. Export revenues for the period declined to US$4.989 billion from US$12.76 billion.

In April, the trade continued a recovery trend that began to show in February. Export volumes were off by only 1.1%, at 285.3 Bcf for the month in 2002 compared to 288.4 Bcf a year earlier. The average gas-export price was down 38.9% at US$3.20/MMBtu and revenues were off by 39.4% at US$924 million.

The contraction broke a string of consecutive sales records that ran for 14 years and left exports accounting for nearly 60% of Canadian production. The growth streak quadrupled annual volumes of deliveries to the United States into a range of 3.5-3.7 Tcf, multiplied revenues nine-fold to US$16.4 billion, and quadrupled the Canadian share of the American gas market to 16%.

Canadian industry analysts have blamed the reverses of first-half 2001-02 on the weather, a slowing economy in the U.S. and fuel-switching among large-scale energy users in response to gas price spikes in 2000-01. But the reverses also underlined a bigger question that has hung over the Canadian industry since the late 1990s — whether reserves and production in established operating areas have peaked and begun to decline. Observers ranging from Natural Resources Canada to FirstEnergy Capital Corp. have pointed to a notable slowing in the growth of productive capacity in western Canada, chiefly Alberta.

The growth rate in western “deliverability” dipped to 0.7% in 2001 from a late-1990s annual average 2.1%, Natural Resources Canada’s natural gas division says in its latest yearly review of the industry. In 1997, the industry achieved production growth with an average 300 gas wells per month. Last year’s reduced growth required 1,000 wells a month.

FirstEnergy suggests the trends will continue to the point where tightening supplies begin to generate upward pressure on prices. In a summer report, the Calgary investment house pointed to the performance of western Canada’s biggest gas discovery in a decade, Ladyfern in northeastern British Columbia. Disclosures available from companies participating in the find indicate that after ramping up to 700 MMcf/d in first-half 2002, Ladyfern production is headed down to 400 MMcf/d million by the end of this year and 150 MMcf/d by the end of 2003, FirstEnergy calculated.

The formation appears to have an annual productivity “decline rate” of 65%, the firm says. FirstEnergy predicted “2002 will represent a watershed year for Canadian natural gas production and 2003, with less Ladyfern production and less production elsewhere in western Canada, will bring about the largest decline in marketable gas production of 4-5% (0.6-0.8 Bcf/d) seen in the past 20 years.”

But disclosures remain limited about Ladyfern, as an exploration and development hot spot where industry rivals are not about to tip their hands to one another. Only one year of production data is available, and it covers only about 30% of production in the field, FirstEnergy said.

In addition, Ladyfern is not the only growth front in western Canada for natural gas production. Less celebrated drilling activity is generating results. They showed when Alliance Pipeline this summer filed two applications at the NEB for permission to expand Alberta pieces of its two-year-old export express route between northeastern BC and Chicago.

The Alliance proposals call for new “laterals” or branch lines to improve the system’s ability to receive production from fields in northwestern Alberta. At Kaybob North in the Fox Creek area, Alliance wants to lay 26 kilometers (16 miles) of 24-inch-diameter pipe with initial capacity to carry 300 MMcf/d for C$21.2 million (US$14 million). At a gas-processing plant called Wapiti owned by Devon Energy Canada, near the fabled Elmworth “deep basin” gas field, Alliance’s plans call for an increase in its takeaway capacity to 345 MMcf/d from 65 MMcf/d.

In its applications to the NEB, Alliance made it plain that both Alberta areas have become gas hot spots. In the Wapiti case, the pipeline says “since the onset of commercial service, shipper demand . . . has outstripped initial expectations. The Wapiti Lateral has consistently flowed at or near its rated capacity . . . and a queue has developed for additional capacity.” The same goes in the Kaybob case: Shipper demand for pipeline capacity “has outstripped initial expectations” and Alliance’s customers have asked for additional service.

BC fields other than Ladyfern also still have plenty of life left in them, especially as geologists try new drilling targets identified with advanced seismic-survey methods. A drilling team of Talisman Energy, Anadarko Canada, National Fuel Exploration and Oiltec Resources reported a success in an area of northeastern BC called Monkman that “opens up a major potential new play system (set of geological targets).” With early exploration wells yielding up to 24 MMcf/d in production tests, the new Monkman formation is rated as harboring up to one trillion cubic feet of reserves in drilling targets already identified alone.

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