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Canada steps up gas hunt
Analysts warn of continued price hikes to 2007 and beyond if LNG projects stalled; call for opening off-limit areas, streamlined permitting Gary Park Petroleum News Calgary Correspondent
To a background chorus warning of high natural gas prices through 2007 and a growing squeeze on North American supplies, Canadian producers are trying their hardest to keep the pipelines full.
With well completions and new permits at record levels, operators in Western Canada are chasing whatever prospects are available.
To the halfway point of 2004, companies in Alberta, Saskatchewan and British Columbia logged 3,986 gas wells, compared with 1,412 oil wells and 398 dry holes, with a further 4,453 wells having no final status.
Of the record 10,258 wells that were rig released in the first six months — 3 percent ahead of the previous high of 9,996 in 2001 — gas targets accounted for 68 percent.
Total well depths in western and northern Canada were 36.57 million feet, an increase of 15 percent over last year’s 31.88 million feet and ahead of the 2001 record of 34.67 million feet.
In Alberta, operators rig released 7,987 wells, beating last year’s tally by 19 percent, while British Columbia posted 886 completions, up 37 percent from 2003.
To the end of June, regulators issued 13,294 well licenses, strongly ahead of the 12,271 permits awarded in the same period last year, with Alberta racking up 10,556 of the permits.
For Alberta, Saskatchewan and British Columbia, operators licensed 9,809 gas-targeted wells vs. 2,562 oil wells, compared with 8,116 and 2,986, respectively, in 2003.
EnCana, the gas-weighted independent, easily led the operators with 3,035 well permits, trailed by Husky Energy at 936, Canadian Natural Resources 864 and Apache Canada 811. Consultant projects strong gas prices But the struggle by E&P companies throughout North America to survive in an era of smaller pool discoveries is reflected in a report by Cambridge Energy Research Associates.
The Massachusetts-based consultant said July 12 that gas prices will stay strong over the next four years and could rise even faster if there is any delay in completing new liquefied natural gas facilities in the United States.
The study forecasts average prices of US$5.83 per million British thermal units this year, $6.02 in 2005, $6.40 in 2006 and $6.62 in 2007 and could continue an “upward trajectory” beyond 2007 if LNG imports are stalled.
The consultant said U.S. lawmakers and regulators must be flexible in allowing drilling in restricted areas, while streamlining permitting in areas already open for drilling and to accelerate construction and expansion of LNG receiving terminals.
“Land access will continue to be a key issue for natural gas production, especially in the Rockies, on many federal land areas and in many sensitive offshore areas,” the study said.
“Since the gas market is expected to remain very tightly balanced over the next five years, efforts should be focused on actions that boost supply or reduce demand over that period,” Cambridge said. Drilling not the solution The consultant does not believe more North American drilling can solve the supply problem, noting that in summer 2001 the United States boosted the number of rigs at work to more than 1,000 from 700 a year earlier, but productive capacity edged up to only 56.8 billion cubic feet per day from 54.9 billion in 1999.
Cambridge said the current gas shortage stems from a decade-old inability to increase output in the United States due to basin maturity, the shift from strong Canadian growth that boosted exports by 80 percent over 15 years to a flat production profile in recent years and an absence of large discoveries despite surging expenditures.
The study predicts North American demand will grow by 1.7 percent a year on average through 2010, assuming gas prices in the $5-$7 range, easing to $4-$6 when LNG imports grow.
It suggests measures may be needed to reduce the dependence on gas, which currently meets 23 percent of U.S. energy needs, including a temporary relaxation of clean-air standards to allow greater use of residual fuels, distillate fuel and coal.
Others have echoed the grim near-term outlook, with Stephen Thumb, with Virginia-based Energy Ventures Analysis, warning there is no supply relief in sight at a time when the most optimistic hope is for flat production.
Tom Driscoll, with Lehman Brothers, said new pools are harder and more expensive to find and, despite new technologies, average wells flow for only two or three years compared with five years or more a decade ago.
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