Growth has been sustained in Canadian natural gas exports to the United States for three consecutive quarters, defying conventional wisdom that supplies have peaked and are entering decline.

Pipeline exports to the U.S. rose by 122 Bcf or 4.6% to 2.793 Tcf in the first nine months of the current gas contract year ending Oct. 31, according to trade records kept by the National Energy Board.

Deliveries kept on increasing at the same time as annual market and reserves assessments by the NEB and the Alberta Energy and Utilities Board (AEUB) repeated peak-and-decline projections that have prevailed in the Canadian industry for about three years.

The consensus still sees the all-time peak in Canadian gas supplies as imminent and forecasts annual average declines to set in at a rate of 2- 2.5%. But the forecasters, including the ultra-conservative AEUB, have also taken to reporting annual postponements of the peak until the next year, and to acknowledging a potential explanation for the surprising resilience of production.

The explanation lies in the Canadian industry’s biggest unknown, development of entirely new coalbed methane production.

After years of refusing to count coal gas on engineering grounds that there was too little publicly disclosed activity to generate reliable estimates of current or future output, the NEB and AEUB have both begun making nominal CBM entries in their reserves and production reports. But the volumes remain admittedly token items for the record, with both agencies emphasizing it is impossible to generate reliable numbers because industry interest and technology are still too new, often confidential and liable to rapid changes.

Within the industry, however, a new consensus is emerging that CBM has arrived to stay on the Canadian scene as a comer on a large scale. Among specialist reports generated with producer co-operation, a new annual survey of reserve replacement costs by Ziff Energy Group predicts the 2005 CBM production growth rate will top 100%. That will still leave output in the modest range of 150 MMcf/d, but it will not take long for the number to mushroom if the growth rate persists for a few years.

Ziff reported “activity has exploded in the Horseshoe Canyon, one of the six main CBM formations in Canada, which is unique in North America for being ‘dry’ CBM. This reduces environmental concerns that have challenged U.S. operators and greatly enhances production economics in Western Canada.”

Although the Horseshoe Canyon coal layer is concentrated in a band between Alberta’s two biggest cities of Calgary and Edmonton and production areas are easy to see, the characteristics of the resource make the proliferating CBM activity difficult to assess. Since the formation is dry Canadian CBM development is hard to tell apart from shallow gas drilling, which is as common as grain fields in the region.

“This formation . . . was drilled through by tens of thousands of wells in previous decades, and has now been ‘rediscovered.’ This year more than 3,000 new CBM wells are being drilled, representing 20% of new gas wells in Canada.”

By Ziff’s calculations, the field is dominated by four companies: EnCana, Trident, Apache and the MGV subsidiary of U.S. unconventional gas specialist Quicksilver. Trident, in a partnership with Nexen, is also the Canadian industry pioneer in a bigger but deeper and wetter formation known as the Manville with a project in the Fort Assiniboine area about 100 miles northwest of Edmonton.

But that quartet is far from the only companies lining up to get in on the budding action. CBM frequently crops up as the target of asset and corporate transactions. In the latest example, a 52-square-mile spread of CBM rights is the principal attraction driving Vermilion Energy Trust to buy out investors who held the one-third interest it did not already own in exploration and development affiliate Glacier Energy for C$94 million (US$80 million).

The transaction highlighted a critical difference between conventional gas and CBM that could help explain more surprises about the durability of Canadian supplies that may lie ahead. CBM is exceptionally well suited for an energy trust built on commitments to make sustainable cash distributions to investors, Vermilion said.

Although CBM field activity looks like conventional shallow gas drilling, the resource behaves very differently. “Production from CBM lands is typically long-life with substantially lower declines than from conventional reservoirs.”

The NEB books on gas exports show pipeline deliveries increased to all but one destination during the nine-month period ending July 31. Deliveries were up by 0.5% to California to 342.5 Bcf, 154% to 10 Bcf to the U.S. Rocky Mountains region, 15.5% to 919.5 Bcf to the U.S. Northeast and 13.4% to 341.7 Bcf to the Pacific Northwest. Shipments to the U.S. Middle West slipped by 4% to 1.18 Tcf.

Prices fetched by Canadian gas exports at the international border averaged US$6.50/MMBtu for the first three-quarters of the 2004-05 contract year, up 22% from $5.34 in the same period of 2003-04. Total Canadian gas export revenues for the period jumped by 28% to US$18.35 billion.

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.