Canada’s National Energy Board has sent a message toparticipants in the international natural gas trade: Stay cool andgreet predictions of Canadian supply shortages with healthyskepticism.
The warning is the bottom line to the latest in an annual seriesof market assessments by the NEB, titled Short-Term Natural GasDeliverability from the Western Canada Sedimentary Basin 1998-2001.The board projects that the expanded Canadian pipeline grid willrun 91% full during 2001, with traffic averaging 17.1 Bcf/d. Bythen, the upper limit will be 18.8 Bcf/d. But the NEB says forpractical purposes, the grid will run at capacity by acceptedyardsticks of the pipeline sector, making allowances for marketvariations.
Although short of the maximum conceivable amount, the 2001Canadian sales projection spells a gain of 12% from the 1998average of 15.3 Bcf/d.Exports to the United States are expectedto continue accounting for about 55% of the gas traffic originatingin Canada. The board notes and sets aside fears raised by someprivate market analysts that the producer community will strainitself and Canadian supplies trying to keep up with the pipelinecapacity. The board rejects predictions that the pace of drillingwill have to skyrocket to 8,000 wells per year in western Canada— a 48% increase beyond even the record 5,400 gas wellcompletions in 1994. The new report suggests such alarmistforecasts only work if they assume that the industry sticks to thedrilling targets — cheap, shallow, small and rapidly-depletingreserves — that were favored by low prices owed to the oldshortages of pipeline capacity. The shortage projections are rootedin drilling patterns established in periods when bottled-upsurpluses drove Canadian prices into a fire-sale range of C$1/Mcf(US68 cents). They have tripled since, thanks to continuingpipeline expansions.
The NEB observes that hard-times wells into shallow plainstargets in southwestern Saskatchewan and eastern Alberta can takeonly a day or two and cost as little as C$75,000 (US$50,000) each.These achieve peak initial output of only 500 Mcf/d on reserves of500 MMcf then suffer annual productivity decline rates of 33-35%.But Canadian producers have a wide range of targets to match marketconditions, the NEB points out.
The NEB says “the increase in the number of wells required tomeet demand will depend on the extent to which producers shift fromdrilling low-cost and low-productivity wells in eastern Alberta todrilling in more prolific areas located in the higher-cost westernregions.” That switch, while not yet a stampede, is clearly underway by high-profile drillers such as Poco-Burlington Resources,Chevron Canada, Ranger Oil, Canadian 88 amd others.
The board calculates that, by increasing the number of deeperand more prolific wells favored by improved prices, the Canadianindustry can keep its pipelines running at capacity at a drillingpace of about 5,000 wells per year.
The NEB acknowledges producers will be challenged to keeppipelines full, but the challenge should be met without anextraordinary drilling effort.
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