CERI: Unconventional gas plentiful; technology a must

Jim Stott
Special Correspondent

CALGARY, Mar. 8 -- Conventional wisdom that US natural gas production is on a steady downward spiral was challenged Mar. 7-8 at a Canadian Energy Research Institute (CERI) natural gas conference in Calgary.

Vello Kuuskraa, president, Advanced Resources International Inc. (ARII), said a number of respected industry analysts claim that US domestic supplies have peaked and are in terminal decline.

He said the logical implication is that for the near term, there are few options besides accelerating construction of an Alaskan gas pipeline and dramatically increasing imports of LNG to meet expected demand growth.

Kuuskraa said the US is not running out of natural gas, only shallow and easy-to-find-and-produce gas. The speaker said there are massive volumes of gas that still remain locked in domestic reservoirs, primarily tight gas sands, gas shales, and coalbed methane basins. In addition, he said, deep gas resources, onshore and offshore, remain undeveloped.

Kuuskraa said 8 of the top 12 gas fields in the US are now unconventional fields. He said more-advanced knowledge and improved technology are increasing recovery rates from unconventional gas reserves. Intensive drilling for coalbed methane (CBM) projects produce much higher recovery rates than traditional well spacing.

"Rumors of a terminal decline in gas production have been greatly exaggerated," the speaker concluded.

WCSB prognosis
Dave Flint, Pres., Forward Energy Group Inc., said Canada's Western Canada Sedimentary Basin (WCSB) will continue to be the main gas supply area in Canada, but annual gas production from the basin has been essentially flat since 2000. In 2003, it produced 16.5 bcfd, 23% of Canadian and US consumption.

Flint asked if the current production from the WCSB is sustainable or "is the sky falling?"

The speaker said a fine balance exists between a decline in production from old wells and the annual production replacement rate from new wells on stream. More than 3.5 bcfd of new productive capacity must be added each year to replace natural decline.

"Careful examination of the trends behind alarmist headlines leads us to believe that the opportunity set has expanded. This has been driven by increased gas prices and netbacks. However, we observe a trend of increasing F&D costs, that, if unchecked, threatens to choke off reinvestment and production replacement in the WCSB," Flint said.

The Forward Energy executive said the treadmill has speeded up, and the effort required to replace production has increased. The number of wells connected has increased to record levels but most are shallow wells drilled by a large fleet of shallow rigs and coiled-tube drilling units. He said outlook for the basin is positive for unconventional gas and improving technology.

Flint said the cost of replacing production and reserves in the WCSB has increased rapidly and, if unchecked, is the greatest threat to sustainable gas supply. He said some Canadian producers are already "voting with their pocketbook," and gas reinvestment in the WCSB is less than 80% of cash flow. Remaining cash flow has been invested in oil sands projects and in other basins, distributed to investors in trusts and used to buy back shares.

Alberta's outlook good
The conference was given a positive outlook on long-term gas potential in Alberta in a study produced by two of Canada's senior energy regulators.

The joint study by Alberta's Energy Utility Board and the National Energy Board increased ultimate gas potential for Alberta by 12% from a 1992 study.

The two boards estimated low-case ultimate potential at 205 tcf, medium case at 223 tcf, and high case at 253 tcf. Ultimate potential remaining is estimated at 101 tcf.

EUB analyst Cal Hill said the study does not include an economic analysis or any data on CBM potential, an area that is seeing rapidly increased drilling activity in Alberta. However, he said the study indicated that Alberta would continue to be an important supplier for decades. He also lauded the study as an important joint venture between the two agencies to improve regulatory efficiency.

Alberta Energy Minister Greg Melchin told the conference the energy industry in Alberta is not a sunset industry but one that has "centuries of opportunity."

He noted that Alberta's oil and gas industry provides 300,000 jobs and accounts for 30% of provincial revenues. The province has massive reserves of oil sands, coal, and coalbed methane. Alberta's oil sands have been recognized as the second-highest proven reserves in the world, with 176 billion bbl of recoverable reserves, he said. These can be increased even more substantially with improved technology, he added. Melchin said the opportunities for CBM development in Alberta are just beginning.

The energy minister said Canada's four western provinces and its two northern territories are working towards increased harmonization of energy regulations and to promote Canada's north and west regions as one big energy supplier.

Melchin said Alberta also wants to work cooperatively with industry to ensure that Arctic gas from Alaska and Canada's Mackenzie Delta can be connected to an Alberta pipeline distribution hub to continental markets.

Contact Jim Stott at stottj@telus.net.

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