Natural gas in dangerous decline, says analyst
Financial Post, Wednesday, June 11
By Claudia Cattaneo, Calgary Bureau Chief
CALGARY - Gas production and drilling results in Western Canada have been so "dreadful" in recent months almost no amount of drilling can overcome production declines in the next few years, according to a report by FirstEnergy Capital Corp.
Martin King, commodities analyst for the energy investment specialist, said poor drilling and poor production results in the last months of 2002 and the beginning of 2003, despite a large industry push to find new reserves, mean the industry won't be able to halt accelerating decline rates.
"Overall, the best characterization of the latest five to six months of gas production results in Western Canada would be: dreadful," Mr. King wrote in a report to clients. "Given the limitations of the drilling fleet and the supply of capital within the basin, we believe that almost no amount of drilling can now be achieved to overcome steady natural gas production declines in the next few years."
The brokerage predicts that Western Canadian production this year will decline by 500 million cubic feet a day, after peaking in early 2002 at about 16.8 billion cubic feet. The brokerage estimates that production declines will hit 25.5% in 2004, from 24.8% this year.
Canada's supply picture could be even tighter if the Alberta Energy and Utilities Board moves ahead with a plan to shut down 900 natural gas wells on Aug. 1 in Northeastern Alberta that produce 250 million cubic feet, the brokerage said. The EUB said last week continued production from the wells in the Athabasca region of Alberta is hurting oilsands projects.
The Canadian industry's poor results add up to more bad news for North American consumers of natural gas. Inventories are so low that prices are the highest they have every been at this time of the year. Yesterday, gas for July delivery rose US1.6¢ to US $6.33 per million British thermal units on the New York Mercantile Exchange.
Indeed, U.S. Federal Reserve Chairman Alan Greenspan told Congress yesterday the U.S. must expand its access to foreign supplies to avert tight supplies and rising prices that hurt consumers and companies. He said if prices remain high, there eventually could be "some erosion" in the U.S. economy.
Canada accounts for 94% of U.S. imports of natural gas, shipping about 10.4 billion cubic feet a day or nearly two thirds of its production.
Concerns about the supply crunch lifted Toronto stocks higher, led by the shares of natural gas producers such as EnCana Corp., which rose $1.40, to $52, while Canadian Natural Resources Ltd. added 80¢ to $61.79.
Mr. King predicted natural gas prices could rise to the US$7 to US$8 per million British thermal units range on average by this winter, potentially repeating the crisis conditions of the 2000/2001 winter.
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