CERI: Required Increases in Gas Spending Slow in Coming
Although Canadian producers have been displaying their
traditional optimism with expectations of steady growth in gas
deliverability and production, a new survey of 40 producers by the
Canadian Energy Research Institute (CERI) shows that their capital
spending plans tell a different story.
"Basically what we're calling for is continued tight markets. I
guess there's no real surprise there," said Paul Mortensen,
director of natural gas supply at CERI. What is surprising,
according to Mortensen, is that despite higher gas prices, producer
spending on gas drilling actually is projected to drop by $700
million in western Canada next year.
CERI's survey shows spending is expected to fall to C$8.9
billion next year from $9.6 billion in 2000. It is expected to
rebound in 2001 back to the $9.6 billion seen this year.
Deliverability and production, meanwhile, are expected to make
small gains. Deliverability is expected to grow to 18.4 Bcf/d next
year and to 19.1 Bcf/d in 2002 from about 18.1 Bcf/d this year.
Production, according to the survey, is projected to grow to 18
Bcf/d in 2001 and 18.6 Bcf/d in 2002 from about 17.6 Bcf/d this
"The reason for [the projected reduction in gas spending] is the
resurgence of oil drilling activity in western Canada," said
Mortensen. "In 1999, we were still having a collapse in oil
drilling, and the field had been cleared for gas. Now, according to
these producers, they are coming back to more traditional levels of
oil spending so that is starting to mean that gas doesn't get it
all their way anymore."
CERI's ninth annual survey of Canadian producers was completed
this summer so some of the projections may have been based on lower
gas prices, he said. In fact, producers were surprisingly
conservative in their price expectations in the survey, with an
average projection of around C$2.50/Mcf for gas this year compared
to the $4.23 actually experienced to date in 2000. "Producers were
probably being cautious after suffering through more than 10 years
since deregulation with low prices interrupted by only brief upward
spikes," said Mortensen.
As a result, CERI made an assumption that producers probably
will raise their spending on gas drilling during the latter part of
this year. Despite the actual comments of producers in the survey,
CERI upped its own forecast on gas spending by 18% in 2001 and
2002. It is projecting C$10.6 billion in gas-directed spending next
year and C$11.3 billion in 2002.
Besides the tug-of-war between oil and gas spending, however,
there is another constraint. "It was the difficulty in identifying
enough targets and getting enough equipment and personnel to drill
them," said Mortensen. "We're at record drilling levels now so
we're running flat out. Last year, we had [a record] 7,000 gas
wells completed in western Canada. This year we are expecting 8,400
gas wells. So when we run this higher spending case, we get a level
of 10,000 gas well completions by 2002. In that case, spending
would be about C$1.7 billion and higher in 2002 than it is now."
The existing personnel and equipment may not be able to support
that level of activity, he said.
In addition, even if the increase comes to pass, the continued
focus on shallow gas drilling could be the spoiler. If the industry
would just shift half of its effort from shallow gas to the higher
productivity areas in western Alberta, CERI estimated that a higher
level of deliverability could be achieved while holding well
completions close to this year's pace. However, CERI's own
projections on production show a slower pace of growth this year
than the survey results show. CERI is expecting production to reach
only 16.8 Bcf/d this year compared to the survey's 17.6 Bcf/d. CERI
expects gas production to increase to 17.5 Bcf/d next year and 18
Bcf/d in 2002.
For a copy of the report contact Paul Mortensen at (403)