The average full-cycle cost of new gas supply in Western Canada has more than doubled since 2000 to C$7.90/Mcf including a return on producers' investment, significantly higher than the C$6.25/Mcf received by producers at the Alberta Gas Plant Gate during the first three quarters of 2007, according to Calgary-based Ziff Energy Group.

And because of the higher costs, Ziff is predicting a 40% drop in the gas-directed drilling rig count for 2007 from 360 rigs in 2006.

In its 21st Western Canada Finding & Development Cost Study, Ziff says the cost for the industry to find and develop new gas reserves has tripled since 2000, due to both smaller reserve targets and much higher input costs to buy land, drill and develop. The cost escalation seen in 2006 represents pressures created by industry peak activity and the impact of the "gigantic" oilsands development on service and labor costs within Alberta.

Most gas strategies show increasing costs, Ziff says, with the highest-cost areas generally being the most remote, with limited access and infrastructure. However, gas costs varied by more than C$5, from the lowest cost in central Alberta to the highest costs for conventional gas on the British Columbia plains.

Newer unconventional strategies, such as tight gas and coalbed methane (CBM), are the industry's main growth engine, Ziff says, because they have the highest production growth and reserve replacement at moderate cost. Deep basin gas has the smallest increase in finding and development costs, reflecting a focus on tight gas in this strategy. And in Central Alberta, the development of Horseshoe Canyon CBM helps maintain production and low finding and development costs.

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