After more than half a century as the Canadian supply mainstay, Alberta natural gas production has peaked and will decline no matter how much drilling producers do, the province's industry watchdog agency says.

A newly issued annual reserves report by the Alberta Energy and Utilities Board (AEUB) said it "has concluded that natural gas production in the province peaked in 2001." Despite vigorous field activity in 2005 and most of last year, "natural gas production in 2007 is expected to decline by 2.2% compared with 2006."

At best the industry will only hold production declines down to a low, gradual rate partly by an expansion of fledgling coalbed methane output to the extent that technical know-how and environmental resistance permit, the AEUB predicted.

"High levels of drilling in the past four years have prevented a sharp decline in production," the board said. But the results of the hot activity confirmed that supply growth is out of the question, the annual reserves review indicated.

Alberta output hovered last year at the same volume, 4.9 Tcf, as in 2005 despite frantic field activity triggered by price spikes after Hurricanes Katrina and Rita damaged production in the Gulf of Mexico region, the AEUB said.

Producers drilled 12,062 successful Alberta gas wells last year and 13,271 in 2005. The AEUB forecasts 12,000 new producing wells this year as the drilling pace stays moderate to slow, then a revival to an annual average of 13,000 in 2008 through 2016.

Coalbed methane, only produced commercially in Alberta since 2002, still shows no signs of fully making up for the decline in conventional gas production despite potential reserves estimates of up to 500 Tcf in formations that carpet much of the province.

The AEUB rates the new supply source as a "supplement" for conventional gas rather than a replacement. Investment in coal seam gas is turning out to be as easily undermined by lows on the price cycle as its nearest counterpart in conventional operations, shallow drilling on the flat and easily accessible plains of southeastern Alberta. Both specialties, while prone to rapid acceleration when prices rise, slow rapidly during market lulls due to low well production rates that effectively increase costs per MMBtu of output.

After drilling 2,434 successful coalbed methane wells in 2006, the industry is cutting the pace by 22% to 1,900 this year, the AEUB estimated. Activity will rebound to 2,400 coalbed methane wells per year in 2008 and 2009 then rise again to an annual average 2,500 in 2010-16, the board predicted.

Over the next 10 years, the AEUB predicted the annual decline rate of conventional Alberta gas production to average 2.5%. "New pools are smaller, and new wells drilled today are exhibiting lower initial production rates and steeper decline rates."

By 2016 the board forecasts Alberta conventional gas output will drop 22% to 3.8 Tcf per year from 4.9 Tcf. Coalbed methane output is expected to more than triple to 596 Bcf per year from 166 Bcf. But the gain of 430 Bcf of coal seam gas will only make up for 39% of the projected loss of 1.1 Tcf of conventional production.

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