There has been much discussion of the stall in gas-directed drilling in the United States despite expectations of higher prices going forward, but gas drilling also has failed to gain momentum in Canada, Raymond James analysts noted in their “Stat of the Week” equity research report. The analysts predict Canadian gas production and U.S. gas imports to fall by about 500 MMcf/d or 2-3% this winter compared to last winter.

“The U.S. isn’t the only major North American natural gas producer suffering from drill bit paralysis and facing production declines,” the analysts noted. “Drilling activity in Canada is now about 20% off pace with last year’s levels and gas production looks to be hitting the wall.

Drilling in the United States and Canada soared in 2001 and Canada added the highly prolific Lady Fern gas field in northern British Columbia. Canadian gas production peaked around 17.5 Bcf/d in the third quarter of last year. However, Canadian well completions now have declined to about 4,735 compared to about 6,150 at the same time last year.

“We estimated that gas production in the third quarter of this year will be about 200 MMcf/d (1%) lower than the third quarter of last year,” the Raymond James analyst said. “Additionally because the industry faces 30-40% first year natural gas decline rates it is likely that the sequential production declines should accelerate as we enter this winter.”

The analysts said the 500 MMcf/d Canadian production decline that’s expected will be in addition to a 3,000 MMcf/d decline from last year in U.S. gas production.

“This expected gas supply decline in Canada and the United States should support much higher natural gas prices as we enter 2003.”

The analysts, however, failed to mention the offsetting impact of the current high level of gas in storage, which many observers expect will provide significant downward pressure on prices this winter. Anticipating higher gas prices going forward, local distribution companies and other storage capacity holders continue to stock up on gas, injecting 65 Bcf during the week ending Aug. 30, according to the Energy Information Administration (EIA). The EIA said in its last storage report that working gas levels on Aug. 30 reached 2,781 Bcf, or 310 Bcf more than the five-year average and 205 Bcf more than the same time last year. To reach 3,200 Bcf on Oct. 31, the traditional end of the injection season, the industry only has to inject 47 Bcf/week compared to an average of 60 Bcf/week for that period over the past eight years.

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