The National Energy Board (NEB) made it official: The widely forecast decline in Canadian natural gas supplies is postponed until further notice because prices, industry activity and the resource base are turning out to be stronger than previously expected.
In a new production outlook report, the NEB predicted that Canadian gas deliverability will do better than hold its own. Output is forecast to rise to 16.9 Bcf/d by 2006 from the current 16.6 Bcf/d. While the projected growth is slight, the NEB acknowledged that the change in the tone of the industry and the annual forecast is substantial.
The direction in which the Canadian industry is headed has apparently reversed. “The expectation of a 0.3-Bcf [per day] increase in overall Canadian deliverability over the three-year projection period compares to an estimated 0.5-Bcf decrease estimated in the December 2003 edition of this report,” the NEB observed. “The main reason for the decline in the previous assessment was an expectation of lower gas prices leading to a less aggressive gas well drilling outlook than is contemplated by this (2004) energy market assessment.”
By industry standards, the NEB’s projections remain conservative. The board said its new supply forecast only relies on prices to stay above C$5 (US$4) per thousand cubic feet. The current trading range is C$6.50-$8.70 (US$5.20-$7.00) for spot and winter forward sales. The NEB’s field activity projections of 15,600 gas wells this year, rising to 17,900 in 2006 are likewise well within the forecasts of the industry groups with first-hand knowledge, the Canadian Association of Oilwell Drilling Contractors (CAODL) and the Petroleum Services Association of Canada (PSAC).
Also conservative by industry standards is the NEB’s forecast of growth by a new western Canadian supply source, coalbed methane (NGC or natural gas from coal in the official lexicon north of the international boarder). The NEB forecast foresees coalbed methane drilling taking until 2006 to reach an annual 2,100 wells.
The field contractors’ associations say their members are reporting much higher levels of activity on the horizon. CAODC and PSAC both expect 3,000 coalbed methane wells next year, thanks to a combination of favorable results of hunting for dry coal seams and application of new technology. Coalbed methane production growth is forecast to be rapid even if the NEB’s conservative outlook turns out to be closer to the mark than the contractor groups’ internal reporting systems.
The board predicts six-fold growth in coalbed methane production to 450 MMcf/d by the end of 2006 from the 75 MMcf/d that the fledgling field’s initial pilot projects reached as commercial development swung into gear early this year.
The second-newest branch of the Canadian gas industry, the Sable Offshore Energy Project (SOEP) and associated Maritimes & Northeast Pipeline on the East Coast, is forecast to remain the most unpredictable supply source in the next few years. While additional production development remains stalled due to exploration drilling disappointments, technical and reserves issues are expected to affect output from SOEP. While a new field will be added to SOEP in early 2005, natural declines are under way in the four zones originally tapped by SOEP, the NEB said.
“Offshore compression is expected to be added in 2006 to enhance production from the original fields. These additions are expected to maintain production around 400 [MMcf/d] for most of the period to mid-2006. However, the significant variability in deliverability over the period will continue to present challenges to markets in the area.”
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