An official with North America’s largest independent gas production company, EnCana Corp., predicted last week that the current gas storage surplus would be depleted before the end of the winter and that gas prices would rise above $4/MMBtu from $3.25 currently (Henry Hub cash) but would not soar to the levels seen two winters ago.

“The thing that really is irrefutable when you take a look at it is the supply decline,” EnCana Vice President Brian Ferguson told analysts at the Peters & Co. Ltd. 2002 Canadian Energy Conference in Toronto. “We liken it to trying to run up the down escalator; it’s really a huge challenge for the industry. In North America, if you do the arithmetic, over 16 Bcf/d has to be added each year just [for supply levels] to stand still.”

Ferguson said despite the overall lull in drilling activity, EnCana currently is investing a lot of its capital in building up its gas production. “We think now is the right time to be positioned with the strongest gas production capability linked with the strongest gas storage position. We are targeting gas sales of over 2.7 Bcf/d this year, growing by about 11% to a little over 3 Bcf/d next year. In our large gas production profile and leading gas storage position, we expect EnCana to be in position to sell about 3 Bcf/d in what we believe will be higher priced markets in the fourth quarter of this year.”

He noted that EnCana, which was formed by the $6.4 billion merger of PanCanadian and Alberta Energy Co. this spring (see NGI, Feb. 4), is in a very good position to capitalize on rising prices. It has 2.7 Bcf/d of gas production and another 2.7 Bcf/d of storage deliverability from North America’s largest independent storage network, which includes Canada’s version of the Henry Hub — the AECO-C hub in southeastern Alberta. EnCana currently has 145 Bcf of working storage capacity.

Ferguson predicted that production from EnCana’s Palliser coalbed methane project in southeastern Alberta will grow by about 10% annually for the next few years. He also noted that EnCana already has a very strong position in southeastern Alberta. “We have huge infrastructure there and currently are producing 1 Bcf/d. We literally have tens of thousands of wells in place. Our economics there are just tremendous.”

He also said EnCana’s position in the Greater Sierra play in northeastern British Columbia has grown to over two million net acres. This area, “we believe, is North America’s largest new regional gas play. We’ve already identified over 500 potential drilling locations and our ability to apply our core competencies will double production from this area over the next three years.”

Ferguson said EnCana has increased gas production from the U.S. Rockies from 140 MMcf/d in May 2000 to more than 650 MMcf/d today. “Our target is to get 1 Bcf/d from the Rockies within the next three years from exploitation of existing assets. Just looking at the Jonah field alone after our Williams acquisition in July, the net cost of our proved reserves is about C70 cents/Mcf.

“EnCana is the largest gas producer among independents and our internal growth means that we have a good shot over the next few years of becoming the largest gas producer in North America bar none.”

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