Canadian companies will cut spending by about 28% on crude oil exploration and development in 1998 to $4.6 billion (Canadian) in response to low oil prices, says the Canadian Energy Research Institute (CERI).
In a new study, CERI says that spending on natural gas E&D will be remain strong but not be enough to offset the effects on budgets of continuing low crude oil prices. Gas E&D spending will rise to about $7.13 billion in 1998 from $7.03 billion in 1997.
The drop in capital spending on oil E&D projects will contribute to an overall 13% drop in Canadian E&D in 1998 vs. 1997.
Canadian companies will continue to shift emphasis to natural gas development, with about 60% of projected upstream spending over the next 2 years allocated to the gas sector.
Based on company surveys, CERI estimates that 4,725 natural gas wells will be drilled in Western Canada this year, 4,973 wells in 1999, and 5,297 in 2,000.
Study coauthor Len Coad said that the challenge for producers will be to maintain proposed spending in the face of low oil prices.
Gas spending drivers
The momentum to gas development is being driven by planned increased pipeline capacity from Western Canada to markets in the U.S. and Central Canada.
TransCanada PipeLines Ltd. and the Northern Border pipeline will add 1.1 bcfd capacity to their systems this winter. The Alliance Pipeline project is scheduled to come on stream with a further 1.3 bcfd capacity for natural gas, plus some liquids, to the Chicago area in 2000.
CERI estimates that Canadian gas deliverability will increase 9%/year from 1997 to 2000, and the Calgary think tank believes that the projected level of drilling activity will meet demand for additional gas.
Coad cautioned that the positive outlook for gas drilling and deliverability becomes less optimistic if the current momentum disappears because of lower oil prices or other factors.
Canadian Association of Petroleum Producers spokesman Greg Stringham noted that Canadian gas producers are seeing higher netbacks and drilling activity is being maintained, and thus he does not expect a supply shortfall.
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