The Canadian Association of Oilwell Drilling Contractors (CAODC) signaled that the latest revision to its drilling forecast "continues, and deepens, the trend of reduced natural gas drilling." The forecast reduction issued Thursday follows lower gas drilling numbers, primarily in Alberta and British Columbia, which began to fall dramatically last year.
Last October, the CAODC forecast a 15% reduction in the number of gas wells that would be drilled in 2007 compared with 2006. The forecast for this year then projected 19,023 well completions, down from 22,298.
After a dismal fourth quarter (see Daily GPI, Nov. 2, 2006; Oct. 26, 2006), several producers operating in Canada predicted in April that there would be an upturn in the country by late this year (see Daily GPI, April 26). However, CAODC has seen no sign of it.
"Following disappointing drilling results in the first quarter of 2007, and activity levels below that expected in the second quarter, the CAODC is now projecting 16,339 well completions," the association said. "This is an additional decrease of some 2,700 wells, or 14%."
The CAODC projects that overall gas drilling activity in 2007 will be down by about 6,000 wells compared with 2006, or off 27%. Viewed in terms of operating days, the decline in operating days is projected to be 37,500 or 24%, compared with the operating days recorded in 2006. Also embedded in the numbers is an expectation that drilling days per well will increase from 7.1 to 7.4.
The fleet utilization, based on the revised forecast, will be 44%, compared with 51% in the original estimate. About 376 rigs are expected to be drilling, on average, this year. This is the first time since 2002 -- when the fleet ran at 46% utilization -- that fleet utilization levels have fallen below 50%, the CAODC said.
A contraction of gas productive capacity is projected for this year by forecasters ranging from investment houses FirstEnergy Capital Corp. and Peters & Co. to the Alberta Energy and Utilities Board. The anticipated size of the decline depends on the forecaster and the various account methods. The most common forecast is for a total productive capacity loss in the range of 400-500 MMcf/d.
However, some analysts, including FirstEnergy, pointed to potential for a larger drop to be registered in the gas trade between Canada and the United States, because growing domestic demand is also expected to take supplies off the international market. Shrinkage in cross-border gas traffic has been seen as potentially up to 1 Bcf/d. The scale of the estimated drop depends largely on the rate of consumption increases by thermal oilsands extraction projects in northern Alberta, which are heavy users of gas and growing rapidly.
Production capacity remains more difficult to count and predict than rig activity. While shallow and coalbed methane drilling is off sharply across western Canada, deeper and larger targets continue to be pursued -- and supplies continue to show resilience. When the last heating season turned seriously cold in February, the latest National Energy Board (NEB) gas trade figures showed Canadian pipeline deliveries to the United States rose 18.4% to 319.4 Bcf, compared with 269.7 Bcf in the warmer February 2006.
Deliveries to Canada's top export destination, the Midwest, rose 6.7% in February to 127.6 Bcf, the NEB records show. Exporters responded to the rising demand even though prices were in retreat. In February, the average fetched by Canadian gas at the international border was US$7.31/MMBtu, down 6.4% from $7.80 a year earlier.
The CAODC forecast is usually reviewed three times a year. For more information, visit www.caodc.ca/forecasts.htm.
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