NGI The Weekly Gas Market Report / NGI All News Access

Supply Rises Slightly in Canada, But Drilling is Flat

Supply Rises Slightly in Canada, But Drilling is Flat

A preliminary look at the Canadian supply situation prior to the winter heating season shows a greater amount of field gas available this year compared to last but less gas in storage and less gas on the way, according to officials at TransCanada Pipelines. Meanwhile, market demand continues to be strong. The bottom line, said Al Jamal, manager of TransCanada's Western Canadian Sedimentary Basin Strategic Assessment, is "the supply-demand balance is still tightening up" and will continue to do so given a normal or colder than normal winter and a continuation of flat drilling activity.

According to TransCanada's latest general assessment, there is expected to be an average of 200 MMcf/d more gas production on TransCanada's Alberta system and a total of about 300 MMcf/d more gas coming from the entire Western Canadian Sedimentary Basin this gas-year (November 1998-October 1999) compared to the prior period. But TransCanada officials still expect relative supply tightness.

Alberta field receipts have averaged 12.5 Bcf/d compared to 12.3 Bcf/d during the last gas year, said Jamal. In addition, during the last gas-year in Alberta there were approximately 5,500 new gas wells connected to TransCanada's provincial pipeline, formerly Nova. This year the company is expecting about 6,300 new connections. There also have been sharp increases in gas well connections in Saskatchewan and British Columbia. In total, the Western Canadian Sedimentary Basin has about 7,300 total new gas wells that have been connected to pipelines compared to about 6,400 wells connected over the prior period, said Craig Yano, senior supply analyst at TransCanada.

"We're expecting that there will be some increase in production because the number of wells that have been tied in or connected this year are much higher than they were last year. However, we don't expect a huge increase in production because a lot of those gas wells being tied in are shallow gas wells in the southeastern part of the province," said Yano. "They are low productivity wells that are being tied in."

And despite the slight increase in production, strong market demand this summer has reduced storage injections to about 290 MMcf/d on average compared to about 500 MMcf/d last summer. As a result, Jamal said he expects storage to enter winter a little more than 90% full compared to 100% full last year.

The mild temperatures really helped producers through last winter, he said, but a more normal winter is likely to test the system this year. "Last fall we were questioning whether we were going to have enough supply for market demand and storage..... And it will be touch and go whether we will have full storage this year. I think it will be dependent on the pricing and the draw of supply to eastern Canada where the storage situation is not as high as [in Alberta] --- at around 70% full at the eastern end now compared to 85% last year at this time."

Looking forward, the supply situation actually is expected to grow even tighter because drilling activity in Alberta is down. Over the last few years about 4,200 gas wells per year have been drilled on average. This year the number of wells expected to be drilled in the province is only 3,900. Because of a slight drilling increase in Saskatchewan and British Columbia, gas drilling in the entire basin is expected to be about flat this year compared to the prior two years at 5,000 total gas wells drilled, said Yano.

"The big question mark is the size of the decline in U.S. [gas] production. We hear that it could be as high as 7% or up to 3 Bcf/d. And there may be a normal or colder than normal winter, which means heavy draws from storage and field production," said Jamal. He added storage is going to be used more and more as a base load source of supply rather than a peak supplement to field production. "Next summer, I think we'll be in a lower storage position than this summer, which again will put significant pressure on prices, we think."

Rocco Canonica

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus