IMPROVING MARKETS SPUR BIG INTERPROVINCIAL EXPANSION
Improved prices and demand are leading to increased development drilling and pipeline expansion plans in western Canada.
Interprovincial Pipe Line System Inc., Edmonton, plans to spend $275 million (Canadian) for a 125,000 b/d expansion of its crude oil pipeline. IPL said planned expansion of its system from western Canada to eastern Canada and the Chicago area is spurred by increased production and oil field development activity.
In other developments related to Canada's rebounding oil market:
- Alberta Energy Co., Calgary, is planning a $450-490 million (Canadian), 845 mile line from Edmonton to Wyoming with an initial capacity of 175,000 b/d.
- A survey of 87 firms by Arthur Andersen & Co. found a majority of exploration and production companies plans to increase spending for exploration and development.
- The Canadian Association of Oilwell Drilling Contractors (Caodc) increased its 1993 forecast for western Canadian drilling to 6,100 wells from an earlier estimate of 5,200.
IPL EXPANSION PLANS
IPL Pres. Brian MacNeill said apportionment is now in effect to ration capacity in the system because of increased demand that has kept the pipeline system operating at capacity for more than 2-1/2 years
He said shortfalls of pipeline capacity depress prices and limit Alberta's production and sales potential. MacNeill estimated Alberta oil is being discounted 50 cents/bbl for deliverability risk and said the discount could increase to $1.
IPL said discussions are now under way with producers on the expansion, which could be complete in 1994.
The company said there are prospects for an additional $1.2 billion investment for system maintenance and improvements the next 10 years, as well as $700 million for additional pipeline development. IPL is pursuing the $117 million St. Lawrence crude pipeline project (OGJ, May 18, p. 32) and the $70 million Intercoastal pipeline (OGJ, Jan. 18, p. 19). In addition, a proposal to reverse flow on the Sarnia, Ont., to Montreal pipeline could cost $40-50 million.
IPL shelved a $1.1 billion pipeline expansion program in 1989 in the face of industry downsizing and a decline in oil output.
SURVEY, FORECAST
About 40% of respondents to the Arthur Andersen survey said they now have insufficient staff to handle increased levels of activity.
About 77% of companies surveyed said there is a need for additional gas pipeline capacity from Alberta to markets in Canada and the U.S. A total of 41% of companies polled said there is a need for additional crude oil pipeline capacity, particularly to the U.S. Midwest.
Companies expect natural gas prices to reach an average of $1.93 Mcf by 1995. But oil prices are not expected to reach $26/bbl, a level that would trigger new development on a large scale, until 2001 or later.
Meantime, Caodc said increased drilling activity will create 10,000 jobs in the field.
The association estimated rig utilization will average 47%, still below the 50% level it says is a breakeven level of activity.
Higher drilling activity was attributed to a provincial royalty incentive program scheduled to end in June and to higher natural gas prices.
Caodc said governments in Alberta and Saskatchewan should make short term, front end relief a permanent part of the royalty system.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.