Despite record drilling and high gas prices, Canadian producersstill are not managing to boost production. TransCanada Pipelinesestimates Alberta field receipts were 2% lower than expected thiswinter and ended up being essentially flat with the 12.4 Bcf/drecorded in winter 1998-99.

The company attributed the setback primarily to the location ofnew wells in lower producing areas and continued steep declinerates of 22% or higher on average, 35% for new wells in the firstyear.

“In spite of significant Western Canada Sedimentary Basin wellconnections (6,200 wells in 1998 and 7,600 wells in 1999), a largepercentage of gas connections have been in lower producing areas,hence the lower supply growth,” TransCanada said in its latestUpdate. Craig Yano, who compiles the pipeline company’s westernsupply and market assessment, said the significant increase indrilling activity was concentrated in the southeastern quadrant ofAlberta where there’s an abundance of infrastructure and theresource base is easily and economically accessible. However, it’salso the area where per well production is lowest by far. “They’reshallow, inexpensive wells and you can make a profit on thatbecause of the high gas prices. [Producers have avoided] going tothe deeper more exploratory areas [in western Alberta], where youhave to build more pipe, spend more money and have more risk… Theincrease in activity in the lower part of the province has loweredthe initial production rate as a whole.”

TransCanada said it expects production to remain flat to downslightly this summer because of the same trends. The company isprojecting field receipts to average about 12.3 Bcf/d this summerand possibly less if the Alliance Pipeline goes into service earlyas expected and robs Nova Gas Transmission of some of its supply.

Lower supply this summer also is expected to put a real strainon storage. TransCanada estimates Alberta storage withdrawals willaverage 650 MMcf/d this winter compared to only 500 MMcf/d lastwinter, leaving about 100 Bcf (44% full) in storage by March 31.”In order to fill storage next summer, an average rate of 580MMcf/d would be required compared to 320 MMcf/d last summer, asignificant challenge,” the company noted. It will depend on wherethe market puts its limited supply – in storage or across theborder, noted Yano. As more gas goes into storage, less will beavailable for export to the burgeoning U.S. gas market. Given thetight supply situation this summer, according to one scenario,there will have to be a 350 MMcf/d decrease in deliveries acrossthe Alberta border in order for storage to reach only 70% full bynext winter. For Canadian storage to reach the average 90% full,deliveries across the Alberta border would have to be cut by 560MMcf/d this summer.

“The industry’s ability to drill deeper, more expensive buthigher productivity wells will be a key determinant of futuresupply growth in the basin,” the company said. The key going intonext year will be whether producers are able to translate the largenumber of gas well licenses in northwestern Alberta into actualproduction.

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