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CERI Optimistic Canadian Suppliers Will Meet Demand, Fill Pipes

October 26, 1998
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CERI Optimistic Canadian Suppliers Will Meet Demand, Fill Pipes

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

"The timing appears very tight" for new supply to meet growing demand and pipeline capacity, which will increase 1.1 Bcf/d by the end of the year with expansions by Foothills-Northern Border and TransCanada systems, and another 1.3 Bcf/d by fall of 2000 with the Alliance Pipeline Project coming on line. But "the production levels required to replace declining reserves and supply expanding pipeline requirements can be achieved."

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

Despite widespread corporate budget-cutting, Canadian gas development investment is holding firm and even increasing modestly this year to C$7.1 billion (US$5 billion), the annual survey found. "The 1998 shift towards natural gas investment is projected to continue through 2000, when 61% of anticipated expenditures are indicated as being gas-related."

CERI forecasts 4,725 successful western Canadian gas wells this year, 4,973 in 1999 and 5,297 in 2000. The 1998 number is down slightly from 4,855 in 1997, but expenditures and drilling depths indicate a shift towards deeper, more prolific reserves in northwestern Alberta and northeastern British Columbia from more numerous but less productive wells farther east in plains regions.

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

CERI says its survey results, taking into account the performance standards of western Canadian gas drilling, indicate deliverability will increase by 5.1 Bcf/d over the 1997-2000 period. That represents a "robust" increase averaging 9%/year. But such expansion is not unprecedented in Canada, where U.S. exports have quadrupled to about 3 Tcf/year since the mid-1980s and total production has nearly doubled to nudge 6 Tcf annually. The drilling and production figures in CERI's projections are within a range described as necessary to sustain the Canadian industry's role in the North American market, in a report released a week ago by the Canadian Gas Potential Committee. Both agencies are as close to authoritative voices as anything Canada has on the hot topic of gas productive capacity. CERI is a semi-official agency funded by Canadian government and industry agencies, while the gas potential committee is a volunteer think-tank of elder and recently-retired gas community statesmen led by former National Energy Board chairman Roland Priddle.

Among commercial analysts, observations of strong gas activity in the teeth of revenue losses from weak oil prices are also swinging opinion around to a view that deliverabiliity will at least stay adequate. A new study by Ziff Energy Group debunks earlier conventional wisdom among some rival analysts and producers that western Canadian capacity is in danger of falling behind gas demand. While reserving the full report for paying customers, the Ziff organizations says its canvass of the gas community concludes that overall, "there are no constraints on the Canadian drilling industry's capacity to drill a much expanded number of gas wells."

Gordon Jaremko, Calgary

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