While Canadian natural-gas producers scramble to increasesupplies, federal and provincial regulators are embarking onefforts to clear long-standing hurdles from the industry’s path. Arecord 600 drilling rigs – 96% of the nation’s 627-unit fleet -were at work as of mid-January. Although oil hunts are reviving,industry analysts estimated two-thirds or more of the activity isdirected at gas.

The concentration on gas – and on deep drilling for largetargets – showed in northeastern British Columbia, where oil isalmost never the objective but 118 rigs were in the field. Alberta,which accounts for four-fifths of established Canadian production,remained the center of activity with 430 rigs in the field. But thefleet also was active in the Northwest Territories, Saskatchewanand Manitoba.

At the same time, the National Energy Board set out to save timeand headaches for the industry and landowners alike when the timecomes to connect wells to markets with pipelines. The NEBcirculated, for industry and public comment, a draft manual forresolving disputes over pipeline rights-of way with mediationrather than board hearings. Although the NEB primarily deals withlong-distance pipelines, it has lately been increasingly involvedwith short and relatively small projects that cross provincialboundaries to put new fields into production. The board said it wasencouraged to try devising a standardized mediation process after asuccessful pilot project with settlement procedures on laterals offthe Maritimes & Northeast Pipeline in Nova Scotia and NewBrunswick. Canadian landowners as well as the company expressed ahigh level of interest in resolving disputes rather than goingthrough fights at regulatory hearings, the NEB said.

At the provincial level, the Alberta Energy & UtilitiesBoard is tackling head-on an even tougher issue – development of”sour” gas laced with hydrogen-sulphide that at best spreadsintense rotten-egg stinks and at worst is lethal in concentrationsas low as 1% if it leaks into the atmosphere. About one-third ofAlberta production is sour and the proportion is rising as drillingaccelerates into formations most prone to the impurity, atincreasing depths and along the foothills of the Rocky Mountains.

The AEUB is crafting responses to recommendations after ayear-long review of escalating conflicts over sour gas amongproducers, processors, landowners, local governments,environmentalists, scientists, farmers, ranchers and healthagencies. All interests were represented on a review panel, whichwas led by retired AEUB Chairman Gerry DeSorcy. The review wascommissioned because long, hot wrangles have become increasinglycommon, with disputes over modest additions to the field pipelinegrid or even single wells in populated areas.

To heal the wounds and keep them from re-opening, the panel made87 recommendations ranging from assembling comprehensive healtheffects information and clarifying the science of assessingsour-gas risks to toughening gas-field leak policing and putting astop to proliferation of sour-gas processing plants.

The AEUB has made it plain that the review’s results will betaken seriously by already implementing a set of recommendations onpublic consultation that the panel described as “an area of majorconcern.” Under new rules enacted as the winter drilling season gotunder way, the industry is being required to provide full, earlyand extensive disclosures of its plans and to show willingness tochange them rather than appeal to the AEUB for approvals overpublic objections. The next provincial budget is expected toinclude increased spending on board activities related to sour gas.

The drilling and the regulatory efforts accelerated at the sametime as the industry saw yet another reminder that it has a hugemarket opportunity if it can come up with the supplies to fulfillit. Another two record-breaking years are ahead for the principaldriving force of the Canadian gas industry’s growth, exports to theUnited States, according to the first monthly outlook report of2001 by the U.S. Department of Energy’s Energy InformationAdministration (see related story this issue).

EIA projected that after hitting a record estimated at 3.49 Tcfin 2000, U.S. gas imports will rise again this year to 4 Tcf thenagain in 2002 to 4.19 Tcf. “Net imports of natural gas areprojected to rise by about 16% in 2001 and by another 4% in 2002,”EIA said. “While Canadian export capacity may not be fully utilizedthis winter, we expect net imports to be 7.8% higher than lastwinter’s imports.”

EIA is counting on Canadian gas exports to keep U.S. supply anddemand in balance even though it also believes American productionis poised to expand. EIA estimated American gas output rose 1.1% in2000 and can increase 5.4% this year then 2.5% in 2002. The growthis viewed as essential even though increases in demand are nowexpected to slow down sharply from the 2000 rate of 4.5% to 2.9%this year then 2.7% in 2002 as industrial and electrical plantsrespond to this winter’s price spikes by switching fuels to theextent they are able. Despite changing economic conditions, EIAwarned that “significant increases in new supply will be requiredto meet expected increases in demand for space heating and powergeneration, and to prevent storage conditions from deteriorating toa worse condition than has already been experienced this year.”

In Canada, economists at the Bank of Montreal agreed that gasmarkets have reached a new plateau of tightness even though thiswinter’s prices are best described as a spike owed toweather-driven demand and lags in supplies. The bank said “theprice for natural gas is not going to fall back to year-ago levels.We think prices will ease in coming months but they’ll still bemuch, much higher than homeowners and businesses are used to.”

A commodity price index compiled by the bank records a 124%increase in Canadian natural gas and oil prices over the past year,resulting in 50% increases in residential and commercial heatingexpenses and curtailed production by heavy industrial users such asfertilizer and aluminum manufacturers.

Gordon Jaremko, Calgary

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