A burst of drilling, described as nothing short of heroic by regional standards, has arrested the two-year-old decline in Canadian natural gas supplies at least for now. Production grew by 2% during the first third of this year to about 17.3 Bcf/d compared to 17 Bcf/d from January through April of 2003, according to records kept by Statistics Canada.

The trend also shows staying power. In April, the last fully reported month, Canadian output was up by two% at 16.5 Bcf/d compared to 16.2 Bcf/d during the same month of 2003. Pipeline exports to the United States accounted for 61% of Canadian gas production during the first third of the year. Deliveries were up by about 6% at 10.5 Bcf/d compared to 10.5 Bcf/d during the opening four months of 2003. Domestic sales inside Canada dropped off by about 9% to 9.2 Bcf/d.

The performance was achieved by “the largest gas-directed drilling effort that has ever been seen in the history of the Western Canadian Sedimentary Basin,” observed FirstEnergy Capital Corp., a Calgary investment house that makes a specialty of tracking gas supplies as a leading indicator of commodity and share prices. The industry completed nearly 15,000 gas wells in 2003 and the total is projected to rise by 7% or another 1,000 to 16,000 completions this year.

Echoing the Alberta Energy and Utilities Board, FirstEnergy predicts the previous decline in western gas supplies will be arrested for this year. Factors are expected to include the first Canadian coalbed methane production beyond experimental field trials as well as results of the accelerated conventional drilling. Coal seam gas output is forecast to reach about 80 MMcf/d, with more on the way in future as a variety of projects advance out of pilot stages.

The strength of the supply recovery continues to depend largely on the industry’s ability to go beyond shallow drilling for low-cost reserves on the plains of eastern Alberta and Saskatchewan, to pursue larger but also riskier and more expensive targets along the foothills of the Rocky Mountains in Alberta and northern British Columbia. FirstEnergy describes the foothills as “a frontier play on western Canada’s doorstep.”

Production from the region has been growing by an annual average of 6.8% for the past five years while plains output has peaked and entered decline. Discovery wells in the foothills region flow an average 4.3 million cubic feet per day. Average output for all foothills wells is a sustained 1.8 MMcf/d. But foothills wells cost an average C$5 million (US$3.75 million) apiece.

The exploratory success rate averages one discovery for every three wells. The discoveries are also often “sour” gas, laced with lethal hydrogen-sulphide, which requires special gathering and processing that comply with strict provincial safety and environmental regulations. “There are few companies that can afford to drill $5 million wells at a 33% success rate,” FirstEnergy observes.

Activity in the Canadian Rockies foothills is dominated by six senior producers with extensive land holdings and experience in the region: Shell Canada, Talisman energy, Petro-Canada, Devon Energy, Suncor Energy and Burlington Energy. Although Shell continues to lead the pack as the pioneer of foothills production since the 1950s, Talisman is a comer in second place with an ambitious expansion program that highlights the scale of efforts demanded by the region.

In the Edson area of the foothills about 140 miles west of Edmonton, Talisman has a total budget of about C$249 million (US$187 million) this year alone, including C$45 million (US$34 million) for gathering and processing facilities on top of 103 new wells. Talisman’s 2004 foothills budget includes a Canadian first for a sour gas plant, construction of a C$21-million (US$16-million) power and heat cogeneration plant projected to reduce greenhouse gas emissions as well as supply the processing site’s eight-megawatt electricity requirements with two megawatts left over for sale on the Alberta grid.

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