Alberta's era of abundant natural gas coming to an end
Oilsands, coal-bed methane will be hard put to replace lucrative gas royalties
Gordon Jaremko
The Edmonton Journal
Monday, June 11, 2007
EDMONTON - Age is overtaking the top money earner that paid off the provincial deficit and fuelled budget surpluses as energy prices rose since 1999.
After more than half a century of growth as the Canadian supply mainstay Alberta natural gas production has peaked and entered a decline that will continue no matter how much drilling is done, the province's industry watchdog agency says.
In its latest annual reserves report, the Alberta Energy and Utilities Board said it "has concluded that natural gas production in the province peaked in 2001."
Despite vigorous field activity in 2005 and most of last year, "natural gas production in 2007 is expected to decline by 2.2 per cent compared with 2006."
Gas accounts for up to 75 per cent of provincial royalties and mineral rights sales. Barring surprises from the royalties inquiry now underway, the more expensive and lightly taxed oilsands are expected to remain less lucrative for the Alberta treasury.
At best, the industry will only hold the gas decline down to a gradual rate, partly by expanding fledgling coalbed methane output to the extent that technical advances and environmental resistance permit, the AEUB predicted.
"High levels of drilling in the past four years have prevented a sharp decline in production," the board said.
But the results of the hot activity confirmed that supply growth is out of the question, the annual reserves review indicated.
Alberta production hovered last year at the same volume as 2005 output -- 4.9 trillion cubic feet, or gas equivalent to 817 million barrels of oil.
The number refused to budge despite frantic drilling fuelled by North America-wide supply scares and price spikes after hurricanes damaged production in the Gulf of Mexico region, the AEUB reported.
Producers drilled 12,062 successful gas wells last year and 13,271 in 2005. The AEUB forecasts 12,000 new producing wells this year as the drilling pace stays moderate to slow. Activity is forecast to revive to an annual average 13,000 wells in 2008 through 2016.
Coalbed methane, only produced commercially in Alberta since 2002, still shows no signs of fully making up for the decline in conventional gas.
The new supply source remains too young for the AEUB even to guess how successful industry will eventually be at tapping potential reserves estimated at up to 500 trillion cubic feet, or methane equivalent to 83 billion barrels of oil, in coal formations that carpet much of the province.
The AEUB calls the new supply source a "supplement" for conventional gas, not a replacement.
Growth is not guaranteed. Investment in coal-seam gas is turning out to be as easily undermined by lows on the price cycle as its nearest counterpart in conventional operations, shallow drilling on the flat and easily accessible plains of southeastern Alberta.
Both specialties, while prone to rapid acceleration when prices rise, also slow down quickly during market lulls.
See JAREMKO / A17
Low well output rates effectively increase production costs, making shallow drilling and coalbed methane programs highly sensitive to price movements.
After drilling 2,434 successful coalbed methane wells in 2006, the industry is cutting the pace by 22 per cent to 1,900 this year, the AEUB estimated. Activity will rebound to 2,400 coalbed methane wells per year in 2008 and '09 then rise again to an annual average 2,500 in 2010-16, the board predicted.
Over the next 10 years, the AEUB predicted the annual decline rate of conventional Alberta gas production will average 2.5 per cent.
"New pools are smaller, and new wells drilled today are exhibiting lower initial production rates and steeper decline rates."
By 2016 the board forecasts Alberta conventional gas output will drop 22 per cent to 3.8 trillion cubic feet per year from the current 4.9 trillion.
Coalbed methane output is expected to more than triple to 596 billion cubic feet per year from 166 billion.
But the gain of 430 billion cubic feet of coal seam gas will only make up for 39 per cent of the projected loss of 1.1 trillion cubic feet in conventional production.
Over the past 10 years, average production by new Alberta gas wells dropped 64 per cent to about 178 thousand cubic feet per day from 497 thousand.
Since 1990 the total number of producing wells multiplied nearly four-fold to 109,300, raising the industry's friction with communities along with costs.
How far will Alberta's gas star eventually fall? The AEUB makes no long-range predictions but points to experience in similar parts of the United States.
"Both Texas and Louisiana show peak gas production in the late 1960s and early 1970s, while Alberta appears to be at that stage today," the board said.
Since 1971 production fell by about 40 per cent on land in Texas and 60 per cent in Louisiana, excluding new fields offshore in the Gulf of Mexico that have no counterparts in Alberta.
The U.S. production drops were steep for the first 15 years after the peaks but the slides eventually tapered off. Output eventually stabilized in Texas and settled into a gentle decline in Louisiana, letting both states maintain shrunken but still "significant" industries, the AEUB said.
AI
