A survey of Canadian field receipts by UBS shows that record drilling this year led to a 2.5% gas production increase in the second quarter. According to UBS estimates, which are based on 95% of the total gas produced in Canada, production in the second quarter averaged 16 Bcf/d compared to 15.6 Bcf/d during the second quarter of 2003. Year to date production rose 1.3% to 15.8 Bcf/d, analysts at UBS said.

“Given the higher than expected production level in Q204, we now believe that Canadian gas production will rise 1.5% in 2004 and average 15.8 Bcf/d versus our previous forecast of 15.7 Bcf/d and compared with 15.6 Bcf/d in 2003,” said UBS analyst Brain C. Dutton. “Given our higher forecast, we are also raising our natural gas export forecast from 10 Bcf/d to 10.1 Bcf/d versus 9.9 Bcf/d in 2003.”

Dutton said the most recent data suggests that production in June was up about 2.2%, or 336 MMcf/d, to 15.772 Bcf/d compared to the same month last year, but was down 253 MMcf/d, or 1.6%, from May levels because of planned maintenance on the Pine River gas plant in British Columbia. The production increase from levels during the previous year was mainly a result of increased field receipts on TransCanada’s Alberta system (formerly called Nova).

“Our survey indicates Nova field receipts averaged 11.034 Bcf/d in June, up 0.322 Bcf/d or 3% versus June of last year,” Dutton said. He said year to date field receipts on Nova were up 1% to an average of 10.788 Bcf/d. The Daily Oil Bulletin reported that during the first six months of the year operators have completed a record 5,789 new gas wells in Alberta, up 36% versus the same period last year.

UBS’s higher gas production comes despite the Alberta Energy and Utilities Board (AEUB) decision to order the shut in of 123 MMcf/d of gas production from the Wabiskaw-McMurray formation in northeastern Alberta to ensure adequate recovery of bitumen reserves in the area. The AEUB concluded that producing the gas could result in lost underground pressure which might jeopardize the future production of a large amount of bitumen.

Despite higher production, however, data from the Alberta government indicates that productivity per each new well dropped 13% in the first quarter compared with the same period last year. As a result, UBS believes well productivity in the province could hit a record low in 2004 of 330 Mcf/d per well versus 378 Mcf/d per well in 2003, 486 Mcf/d per well in 2002, 516 Mcf/d per well in 2000 and 825 Mcf/d per well in 1998.

“With productivity per newly connected gas well falling and with the annual basin decline rate averaging approximately 23-25% only the record-setting pace of new gas well completions during the first half of this year is supporting the year over year rise in production,” Dutton said.

The Daily Oil Bulletin reported that a record 7,139 new gas wells were completed in Canada during the first half of this year, up 38% from the first half of last year. UBS estimates that the industry will need to complete 15,000 new gas wells this year, an 8% increase from 2003’s record level of 13,944 well completions, to achieve the expected 1.5% gas production increase.

Last year, producers completed many more gas wells in the second half of the year so producers “could in fact complete upwards of 16,000 new gas wells in 2004…leading to even higher production than our revised forecast.”

Despite production increases from Canada, however, the North American gas market is expected to remain “supply constrained,” according to UBS, which projects that U.S. gas production will fall 3% this year and another 2% in 2005.

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