Rising net natural gas exports to the United States “could put more pressure on natural gas prices” both in the United States and “especially” in Canada as pipeline capacity fills up, according to the latest oil and gas research bulletin by Lehman Brothers’ exploration and production analysts.

Canada’s October natural gas production increased 8.4% — 1.2 Bcf/d — compared to the same period a year ago, giving credence to the belief that its year-over-year production cap may be wide for December (possibly 900 MMcf/d to 1.1 Bcf/d), “providing downside risk to natural gas prices and the exploration and production (E&P) group,” according to analysts. Lehman Bros. also noted that Canada’s three consecutive years of 20% growth in well completions will lead to “strong sustainable increased natural gas production.”

October 2001 production was 15.2 Bcf/d, up 1.1% or 166 MMcf/d from September. “This sequential increase was greater than the estimated 495 MMcf/d or 3.4% decline experienced in October 2000 — the only year in the prior three years to experience a sequential decline in October,” said analysts. The year-to-date total Canadian production through October 2001 averaged 15.1 Bcf/d, “786 MMcf/d (5.5%) higher than prior year production, and 817 MMcf/d (5.7%) and 846 MMcf/d (5.9%) higher than the average production rates for the same period in 1999 and 1998, respectively.”

Most impressive was production from the East Coast, where the Ladyfern discovery produced an average 475-485 MMcf/d in October and accounted for about 40% of the year-over-year increase. The analysts’ production estimate used Canadian Natural Resources’ recent production increase of 45-50 MMcf/d. Additional expansion plans in the Murphy Oil/Apache Corp. partnership and Canadian Natural Resources at Ladyfern “could result in further production increases of about 180-185 MMcf/d” by the end of the year. “It is our belief that the future production gain from Ladyfern could contribute to flat-to-rising Canadian production over the remainder of the year”…resulting in a December production increase of 900 MMcf/d to 1.1 Bcf/d.

Year-to-date through November, a total of 9,706 natural gas wells were completed in Western Canada, equating to a 21.8% increase over 2000. Additionally, noted analysts, 2001 natural gas well completions “have been roughly triple the 1996 level and double the 1997-1999 average,” leading to continued strong growth.

Lehman Bros. obtained production data from receipt information from the Alliance Pipeline Ltd., Brent Friedenberg Associates Ltd., Canada-Nova Scotia Offshore Petroleum Board and Westcoast Energy.

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