Canadian natural gas production dropped for the second consecutive year in 2003, confirming widespread industry and government expectations that it will contribute to tight supplies and high prices across North America.

The nation’s chief record keeper, Statistics Canada, reported total marketable production was 5.86 Tcf last year, down 3.5% compared to 6.07 Tcf in 2002.

The greatest supply effect was on volumes of exports. Pipeline deliveries to the United States were 3.6 Tcf in calendar 2003, down more than 5% compared to 3.8 Tcf the previous year.

Domestic sales inside Canada rose by about 2% to 2.6 Tcf in 2003 compared to 2.5 Tcf the previous year. Along with rising industrial consumption led by growing oilsands plants in northern Alberta, Statistics Canada said residential and commercial demand was also strong across the country.

Use of gas for heat and power generation at oilsands complexes has emerged as a central concern among Canadian industry and government energy supply forecasters. The topic was expected to be one of the key issues explored in a report scheduled for release during the first week of March by the Canadian Energy Research Institute, a quasi-official think tank supported by industry and federal and provincial government agencies.

In a supply study laid before the National Energy Board in a tolls case, TransCanada PipeLines Ltd. has highlighted the increasing effect of oilsands development on the gas outlook.

Over the next 10 years, TransCanada predicted that western Canadian demand for gas will rise 2.2 Bcf/d or nearly 50% to 6.76 Bcf daily in 2013 from 4.53 Bcf/d in 2003. Oilsands plants alone are expected to account for demand growth of 1.06 Bcf/d in an amount equal to the initial deliveries forecast from the proposed Mackenzie Valley Pipeline.

Use of gas in western Canadian power generation, which is also affected by oilsands development, is projected to increase by 490 MMcf/d or nearly 80% to 1.1 Bcf/d by 2003.

Oilsands development continues to be on the rise. All three Canadian bitumen mining and synthetic-oil manufacturing plants are expanding. The newest plant, the Athabasca Oil Sands Project led by Shell Canada, received approval earlier this month from the Alberta Energy and Utilities Board to more than double production eventually by adding new mines.

In addition, Canadian Natural Resources received approval for the fourth mining and processing complex, a C$8.5-billion (US$6.4-billion), 233,000-barrels-daily mammoth that the company expects to start building by year-end.

The older operations have been using gas at a rate at times exceeding an Mcf per barrel of oil produced, although the consumption has been trending downwards as a priority item to control costs. High gas prices and the supply outlook are also lighting a fire under development of a new generation of oilsands technology.

The latest project to receive regulatory and company director approval for construction, the Long Lake partnership of Nexen Inc. and OPTI Canada Inc., uses a new approach that eliminates the use of purchased natural gas entirely. The C$3.4-billion (US$2.6-billion) development will consume part of its initial output of low-grade bitumen for fuel with a new gas conversion process.

Other technology is under development to reduce oilsands production costs by eliminating the use of gas, including injections of liquids and underground combustion. While such approaches have been the subjects of experiments going as far back as the 1920s in the oilsands, project sponsors say the technologies are at last near commercial use because they can be combined with other innovations such as horizontal drilling

TransCanada told the NEB that the next 10 years will probably see the greatest growth in gas use by the oilsands sector because the new approaches look likely to come into large-scale use afterwards.

TransCanada’s study said that with current production technology, a projected 1.2 million b/d increase in oilsands production by 2013 is expected to raise oilsands gas consumption by 1.06 Bcf/d. After 2013, a further 800,000 b/d increase in oilsands production is projected to raise gas consumption by only 240 MMcf/d.

TransCanada said “it is forecast that the ‘gas intensity’ measured in the quantity of gas required to extract and refine bitumen will decrease from 0.9 Mcf per barrel in 2013 to 0.7 Mcf per barrel in 2027.”

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