Amid confirmation that volumes of exports to the United Statesare on the rise and confident predictions that prices will staystrong, Canadian natural gas drilling is accelerating rapidly. Thenumber of gas-well completions in western Canada is expected to hitat least 8,200 next year.
Even the most conservative forecasters north of the border, inthe Petroleum Services Association of Canada, say field activityhas rebounded to the point where a total of 10,200 wells will bedrilled this year and 13,550 in 2000. Gas already became the targetof about 60% of Canadian drilling this year, and its share ofactivity is growing.
Despite healthy oil markets, PSAC reports that as of theforthcoming winter drilling season, gas will be the target 70% ofthe time or almost double the traditional Canadian level of 40%.Provided traditional success rates hold, the 2000 forecast worksout to 8,200 gas wells, 3,250 oil wells, 1,905 dry holes and 195″service wells” for uses such as waste-water disposal.TheCanadian Association of Petroleum Producers and CanadianAssociation of Oilwell Drilling Contractors likewise see gasbecoming the target of most drilling. They only disagree with thePSAC in projecting about 1,000 more wells.
The limiting factor will be labor, PSAC warned in forecastspresented at its annual meeting in Calgary. Association presidentRoger Soucy said the industry’s feast-or-famine cycles limit itsability to perform to full potential by hurting its ability to keeptrained people. Canadian field service, supply and contractingfirms are scrambling to replace about 4,000 staff let go in the1998-99 activity slump.
PSAC member companies said they are not only starting to competewith one another for people, but the chore is being made extra hardby rising technical and safety standards as well as competitionfrom other healthy branches of the western resource economy.Canadian gas export volumes are well on their way to setting theirtenth consecutive annual record, shows the latest quarterly reporton the trade by the U.S. Department of Energy’s Office of FossilEnergy. In the first-half 1999, American imports from Canada rose7.5% to 1.612 Tcf, foreshadowing annual deliveries exceeding the3.05 Tcf that represented 14% of U.S. consumption last year.
The Canadian export volume growth so far this year isconcentrated on the Foothills-Northern Border expansion, whichopened last winter. Deliveries on the route jumped by an average562 MMcf/d to 2.1 Bcf/d in first-half 1999. Two more volumeincreases are in the works. As of Nov. 1, newly-completed Maritimes& Northeast Pipeline starts export deliveries on the order of400 MMcf/d. Alliance Pipeline Project reports construction of its1.3 Bcf/d route is on schedule to hit its in-service target 11months later.
Price improvements began showing in second quarter 1999.Canadian exports under long-term contracts (two years or more)fetched an average US$2.12 per MMBtu, up 11 cents or 5% from thefirst quarter of this year. Short-term deals — which now accountfor 57% of Canadian exports — averaged US$1.92, up 16 cents or9%. Measured in the weaker Canadian currency, the strengthenedexports — coupled with a new trend for domestic sales prices totrack those of exports — have driven prices at the key AECO-Ctrading hub in southeastern Alberta into the C$4 range. That is bya wide margin — of up to C$3 — the highest level seen since theonset of deregulation in the mid-1980s. Barring an unexpectedslump in U.S. prices, Canadian analysts expect the strengtheningtrend to continue. FirstEnergy Capital Corp. figures the 2000average could hit C$3.25. Peters & Co. expects C$4 in Decemberand winter spikes topping C$5, but adds the numbers could be higherif the heating season turns out to be a cold one.
Gordon Jaremko, Calgary
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