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Western Canada gas basin fading Ziff Energy predicts output to drop 2 bcf per day over 8 years, regardless of drilling; worries about rigs, people, supplies, prospects Gary Park For Petroleum News
The importance of getting gas from North America’s Arctic regions to market keeps gathering weight, not least in the latest assessment of the Western Canada Sedimentary basin by Ziff Energy Group.
The highly regarded Calgary-based energy consultant has painted one of the bleakest pictures yet for a basin that currently produces 16.6 billion cubic feet per day, 70 percent of which is exported, accounting for 16 percent of U.S. consumption.
In a new outlook to 2014 covering production of existing gas, new conventional gas, coalbed methane, tight gas and solution gas from eight gas strategy areas, Ziff is unwavering in its conclusion that productivity is declining in the maturing basin.
Its base case projects a drop in output to 14 bcf per day over the next eight years, by when 60 percent of the basin’s ultimate potential resource will have been produced.
That’s a sharp reversal from the early 1990s, when discoveries of British Columbia’s Ladyfern field and the Northwest Territories’ Fort Liard play suddenly elevated the basin to the future hope for North American supply growth.
But the two biggest onshore finds in Canada for years have started to fizzle, limiting the WCSB to only marginal growth at best despite a succession of annual drilling records. Conventional output down Conventional output has shrunk since 2001 and, according to Ziff, not helped by a breakdown in the traditional correlation between well completions and gas prices.
The study said that relationship “now appears to be constrained by availability of rigs, people, supplies, services and conventional opportunities in a maturing basin.”
By 2014, Ziff expects coalbed methane and tight gas will grow to 27 percent of WCSB production, with coalbed methane contributing 1.8 bcf per day; gas from new completions will comprise more than 60 percent of 2014 production and will require completion levels similar to the 2004 peak of 15,700 wells; and new gas well maximum productivity will decline across the basin, while new gas well decline rates, currently 30 percent in the third year, will increase.
Ziff noted than an annual average 2.5 bcf of new gas is needed just to replace production declines.
It said 16,500 well completions are possible as long as the New York Mercantile Exchange price averaged about US$7 per million British thermal units, but if the price slides below US$5 Ziff expects more producers will follow EnCana’s lead and take the scissors to their budgets.
Even at US$7, marginal prospects would likely be deleted from budgets, Ziff predicts. Productivity highest in Foothills Of the strategy areas, productivity is highest in the Foothills region which extends down the spine of the Canadian Rockies in British Columbia and Alberta, but Ziff predicts decline rates will accelerate in several regions.
Central and west-central Alberta, the “breadbasket” of WCSB gas at more than one-third of total basin supply, are likely to remain flat to slight growth as CBM increases offset conventional declines.
Southern Shallow (in southeastern Alberta and southwestern Saskatchewan along the Montana border) has 34 percent of last year’s gas well completions, down from 54 percent in 2003, as shallow rigs are directed to coalbed methane plays.
Over the forecast period, Ziff assumes no increases from Fort Liard and no production at all from offshore British Columbia, which it thinks is a more distant commercial prospect than Alaska gas.
It does not factor in gas from the Mackenzie project, which could come on stream in 2011 at 800 million to 1.2 bcf per day, but the Arctic venture figures large in Canada’s numbers game. Arctic gas needed At the Canadian Institute’s Arctic Gas Symposium in Calgary in March the need for the North Slope and Mackenzie pipelines was repeatedly hammered home.
TransCanada Chief Executive Officer Hal Kvisle said balancing supply and demand in North America will “need both the importation of LNG and the development of the two major northern projects.”
He also took the chance to point an accusing finger at the slow approval processes for both pipelines, which he said have become “extraordinarily long and very difficult and can cause even the most determined and seasoned company to at some point throw their hands in the air.”
Kvisle warned that despite the need for Arctic gas, northern proponents have no reason to be complacent.
“It’s not necessarily a slam dunk that northern gas can go ahead when faced with the very much larger volume of LNG that could come on,” he said.
“In our view the demand for natural gas and electric power will continue to grow,” Kvisle said. “To that end we need to make major investments in infrastructure here in North America.
“If some of this infrastructure does not get built and gas supply remains constrained then we are going to see gas prices rise to levels that are very unpleasant. ...”
Randy Broils, Imperial Oil senior vice president, told the symposium that the Mackenzie will be an important new source of supply, although LNG is expected to dominate new volumes.
“Our focus for the Mackenzie project is ensuring we have a viable project that can compete head to head with LNG in the long term,” he said.
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