Canadians are wasting no time making sure production capacitykeeps up with increases in demand for natural gas that pipelineprojects are expected to generate over the next two years,according to an annual deliverability survey released last week bythe Canadian Energy Research Institute. Not even this year’s 30%drop in oil prices hurt producer revenues and budgets enough toslow down gas development.

“The timing appears very tight” for new supply to meet growingdemand and pipeline capacity, which will increase 1.1 Bcf/d by theend of the year with expansions by Foothills-Northern Border andTransCanada systems, and another 1.3 Bcf/d by fall of 2000 with theAlliance Pipeline Project coming on line. But “the productionlevels required to replace declining reserves and supply expandingpipeline requirements can be achieved.”

Overall, CERI reports Canadian oil and gas production investmentis dropping by 13%, C$1.75 billion (US$1.25 billion), to C$11.75billion (US$8.4 billion) this year from its 1990s peak of C$13.5billion (US$9.6 billion) during 1997. Spending on oil is headeddown this year by 28% to C$4.6 billion (US$3.3 billion). But, aswidely forecast by numerous Canadian agencies and analysts over thepast year, spending on gas is on the rise.

Despite widespread corporate budget-cutting, Canadian gasdevelopment investment is holding firm and even increasing modestlythis year to C$7.1 billion (US$5 billion), the annual survey found. “The 1998 shift towards natural gas investment is projected tocontinue through 2000, when 61% of anticipated expenditures areindicated as being gas-related.”

CERI forecasts 4,725 successful western Canadian gas wells thisyear, 4,973 in 1999 and 5,297 in 2000. The 1998 number is downslightly from 4,855 in 1997, but expenditures and drilling depthsindicate a shift towards deeper, more prolific reserves innorthwestern Alberta and northeastern British Columbia from morenumerous but less productive wells farther east in plains regions.

The drilling predictions are less optimistic than in CERI’s 1997survey, when the industry canvass took place during a period ofstrength in oil as well as gas prices. But the forecast continuesto anticipate record Canadian gas field activity levels.

CERI says its survey results, taking into account theperformance standards of western Canadian gas drilling, indicatedeliverability will increase by 5.1 Bcf/d over the 1997-2000period. That represents a “robust” increase averaging 9%/year. Butsuch expansion is not unprecedented in Canada, where U.S. exportshave quadrupled to about 3 Tcf/year since the mid-1980s and totalproduction has nearly doubled to nudge 6 Tcf annually. The drillingand production figures in CERI’s projections are within a rangedescribed as necessary to sustain the Canadian industry’s role inthe North American market, in a report released a week ago by theCanadian Gas Potential Committee. Both agencies are as close toauthoritative voices as anything Canada has on the hot topic of gasproductive capacity. CERI is a semi-official agency funded byCanadian government and industry agencies, while the gas potentialcommittee is a volunteer think-tank of elder and recently-retiredgas community statesmen led by former National Energy Boardchairman Roland Priddle.

Among commercial analysts, observations of strong gas activityin the teeth of revenue losses from weak oil prices are alsoswinging opinion around to a view that deliverabiliity will atleast stay adequate. A new study by Ziff Energy Group debunksearlier conventional wisdom among some rival analysts and producersthat western Canadian capacity is in danger of falling behind gasdemand. While reserving the full report for paying customers, theZiff organizations says its canvass of the gas community concludesthat overall, “there are no constraints on the Canadian drillingindustry’s capacity to drill a much expanded number of gas wells.”

Gordon Jaremko, Calgary

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