After a year of 6% gas production growth in 2001, Canadian gas production growth in January and February is beginning to slow down. Canadians may be unable to make significant gains without another Ladyfern-type find, said Lehman Brothers analyst Thomas Driscoll.

Western Canadian production in January was up only a modest 0.1% over the prior year. Western Canadian production is up 2.5% so far this month. Month-to-date on Feb. 18, western Canadian production averaged an estimated 14.5 Bcf/d, or a 0.4 Bcf/d (2.5%) more than the previous year and a 0.2 Bcf/d (or 1.6%) increase from January 2002. These modest increases follow surprising growth in well completions. There was a 53% increase in natural gas well completions in December compared to December 2000, said Driscoll. Well completions rose 142% in December to 1,475 gas wells from one month earlier.

Gas exports, however, are down sharply because of low demand in the United States. In January, exports were down 10% from the prior year. In addition, Canadian gas storage inventories are very high. Inventories of 357 Bcf on Feb. 8 were 187 Bcf greater than last year, and 134 Bcf greater than the four-year average.

Meanwhile Ladyfern production is chugging along with expectations that it will reach a substantial 785 MMcf/d by April after new pipeline additions from a January estimate of about 520-550 MMcf/d. “With the industry scrambling to find look-alikes, another discovery of this size, while a long shot, would put additional pressure on North American natural gas prices,” Driscoll said.

Driscoll said he expects a 20% reduction in Canadian E&P spending this year, compared to last year. Rig utilization already is declining sharply. For example, for the week ended Feb. 12, oil and natural gas rig utilization was down by 100 rigs, or 16% from that of the same week last year.

“While reduced drilling should theoretically result in either slower production inclines or possibly production declines, if another Ladyfern-type field is found, then we would expect production adds to have a meaningful impact on production levels, possibly making the reduction in capex un-noticeable in the production data,” said Driscoll. “This could potentially put more pressure on natural gas prices in the United States and especially in Canada, as all of this gas may not find a market in the already saturated United States. We expect Canadian Natural Resources to report results on at least one of its five planned Ladyfern look-alike exploration wells within a month. This type of drilling is the wild card that could swing production figures to the upside.”

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.