A preliminary look at the Canadian supply situation prior to thewinter heating season shows a greater amount of field gas availablethis year compared to last, but less gas in storage and less gas onthe way, according to officials at TransCanada Pipelines.Meanwhile, market demand continues to be strong. The bottom line,said Al Jamal, manager of TransCanada’s Western CanadianSedimentary Basin Strategic Assessment, is “the supply-demandbalance is still tightening up” and will continue to do so given anormal or colder than normal winter and a continuation of flatdrilling activity.

According to TransCanada’s latest general assessment, there isexpected to be an average of 200 MMcf/d more gas production onTransCanada’s Alberta system and a total of about 300 MMcf/d moregas coming from the entire Western Canadian Sedimentary Basin thisgas-year (November 1998-October 1999) compared to the prior period.But TransCanada officials still expect relative supply tightness.

Alberta field receipts have averaged 12.5 Bcf/d compared to 12.3Bcf/d during the last gas year, said Jamal. In addition, during thelast gas-year in Alberta there were approximately 5,500 new gaswells connected to TransCanada’s provincial pipeline, formerlyNova. This year the company is expecting about 6,300 newconnections. There also have been sharp increases in gas wellconnections in Saskatchewan and British Columbia. In total, theWestern Canadian Sedimentary Basin has about 7,300 total new gaswells that have been connected to pipelines compared to about 6,400wells connected over the prior period, said Craig Yano, seniorsupply analyst at TransCanada.

“We’re expecting that there will be some increase in productionbecause the number of wells that have been tied in or connectedthis year are much higher than they were last year. However, wedon’t expect a huge increase in production because a lot of thosegas wells being tied in are shallow gas wells in the southeasternpart of the province,” said Yano. “They are low productivity wellsthat are being tied in.”

And despite the slight increase in production, strong marketdemand this summer has reduced storage injections to about 290MMcf/d on average compared to about 500 MMcf/d last summer. As aresult, Jamal said he expects storage to enter winter a little morethan 90% full compared to 100% full last year.

The mild temperatures really helped producers through lastwinter, he said, but a more normal winter is likely to test thesystem this winter. “Last fall we were questioning whether we weregoing to have enough supply for market demand and storage… And itwill be touch and go whether we will have full storage this year. Ithink it will be dependent on the pricing and the draw of supply toeastern Canada where the storage situation is not as high as [inAlberta] – at around 70% full at the eastern end now compared to85% last year at this time.”

Looking forward, the supply situation actually is expected togrow even tighter because drilling activity in Alberta is down.Over the last few years about 4,200 gas wells per year have beendrilled on average. This year the number of wells expected to bedrilled in the province is only 3,900. Because of a slight drillingincrease in Saskatchewan and British Columbia, drilling the entirebasin is expected to be about flat this year compared to the priortwo years at 5,000 total gas wells drilled, said Yano.

“The big question mark is the size of the decline in U.S. [gas]production. We hear that it could be as high as 7% or up to 3Bcf/d. And there may be a normal or colder than normal winter,which means heavy draws from storage and field production,” saidJamal. He added storage is going to be used more and more as a baseload source of supply rather than a peak supplement to fieldproduction. “Next summer, I think we’ll be in a lower storageposition than this summer, which again will put significantpressure on prices, we think.”

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