Canada's annual natural gas production increased almost 20% during 1995-2001. During that time Canadian gas satisfied continuing growth in its domestic markets while increasing exports to the US by almost a third.
In 2002, the record of growth ended as gas well completions fell by 17% and overall production began to drop. Despite higher prices and increased drilling in 2003, supply growth remains elusive, reported the Canadian Energy Research Institute, Calgary.
CERI assessed the potential supply and costs of natural gas in Canada to determine whether the limit had been reached for conventional Western Canada gas production and to determine future potential for alternative sources of Canadian gas.
Study logistics
In a June 17 report, CERI estimated the size of the economically recoverable gas resource base and provided a 20-year projection for Canadian gas production. The starting point of the analysis was the latest gas resource assessment prepared by the Canadian Gas Potential Committee (CGPC). The CGPC estimates that undiscovered gas in place is 225 tcf.
CERI commissioned a study to define an alternate estimate of Canada's natural gas resources. For the alternate case, the estimated undiscovered conventional gas in place in Canada amounts to 527 tcf.
Although the study does not focus on production rates, its results help to create profiles of what the evolution of Canadian production and related costs might look like during the next 2 decades, CERI said.
Most Canadian production currently comes from the Western Canada Sedimentary Basin (WCSB), and its annual productive capacity hinges upon the pace of drilling.
CERI outlined three profiles for drilling capacity for assessing future productive capacity:
- A low case, depicted by a constant rate of drilling at 8,000 wells/year.
- A high case in which 15,000 wells/year are drilled.
- A middle scenario in which drilling increases to 1,5000 wells in 2008-09 from 8,000 wells/year in 2002. After 2008-09, the profile suggests that drilling will decline to about 10,000 wells/year in 2025.
For the two higher drilling scenarios in the CGPC case, WCSB productive capacity remains at or above 2002 levels until about 2010 and subsequently declines steadily. For the low drilling case, productive capacity begins a steady decline in 2005. In the alternate case, WCSB production increases in the near term in both the high and middle scenarios and remains above present levels until about 2015.
With respect to gas from Canadian frontier regions, judgments were based on available information about the likely timing of production for frontier basins. Such timing must take into account numerous factors, including time taken to negotiate with stakeholders, to obtain regulatory approvals, and to undertake construction.
Production estimates
The analysis yields a time profile in which, using the CGPC geological estimate, total Canadian production (including the middle drilling scenario for the WCSB) increases to some 7 tcf/year by 2010 from its 2002 level of 6 tcf.
Production is maintained at about 7 tcf/year until 2015, declining at a modest rate to about 6 tcf in 2025. Using the alternate geological estimate, production capacity remains well above 2003 levels throughout the projection horizon, so that it is still about 7 tcf/year in 2025.
These projections indicate that so long as gas supplies from coalbed methane and from new basins can be brought on stream in a timely manner, Canadian gas production can be sustained at levels higher than now through at least 2025.
If the geological estimates of the alternate case are correct, production could be as high as 8 tcf/year over much of the projection horizon.
The analysis concludes, however, that such levels of production are likely to come at ever-increasing supply costs. Compared with $2.50/Mcf in 2002, the supply costs of Canadian gas—in 2001 Canadian dollars—are likely to be at least $4/Mcf by 2020.
Supply costs associated with the midpoint of the supply projections are $5/Mcf by 2020. This cost range appears consistent with price projections from other agencies.
"This implies that the North American gas price would have to continue to trend upwards from its annual average in 2002. However, it also implies that the prices observed in the early months of 2003 (which have ranged from $5.42/Mcf to $13.64/Mcf at [Alberta trading hub] AECO are not likely to be sustainable on an annual basis for some years to come," the CERI report said.
