Short-term Canadian Natural Gas Deliverability 2006-2008 - An Update

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May 2007

In October 2006, the Board released its Energy Market Assessment "Short-term Canadian Natural Gas Deliverability, 2006-2008" ("the 2006 EMA"). The EMA presented an outlook for Canadian gas deliverability based on projections of gas well drilling activity and well production characteristics.

The Board is providing this update to its outlook of short-term natural gas deliverability to reflect the impact of reduced gas drilling activity since mid-2006 in the Western Canadian Sedimentary Basin (WCSB).

About 98 percent of Canadian gas production comes from the WCSB and new gas wells play a vital role in maintaining basin deliverability. A reduction in drilling activity in the WCSB began in 2006 and has continued in 2007. Lower gas prices, increasing drilling costs and decreasing productivity of new gas wells are all factors that contributed to the current downturn in gas drilling activity in the WCSB. Fewer gas wells being drilled leads to a lower expectation of deliverability.

The Board determined three scenarios of WCSB gas drilling activity (low, high and reference cases) and assessed gas deliverability for each case. Figure 1 shows the historical number of annual gas-intent wells (including Coal Bed Methane) in the WCSB, along with the annual number of wells projected in the 2006 EMA and under the three new NEB scenarios. In the Board's view, the reference case represents the most likely scenario, while the high and low cases represent the likely upper and lower boundaries.

Figure 1: WCSB Annual Gas and Coal Bed Methane Intent Wells, Historical and Projected

Source: NEB Analysis of GeoScout data for Historical Annual Drilling

Figure 2 shows the Board's assessment of Canadian deliverability for the three scenarios considered in this update, along with historical Canadian gas production and the deliverability projection made in the 2006 EMA. Table&nbnsp;1 contains the same data tabulated in terms of annual average marketable gas deliverability. In the reference case of this update, average annual Canadian gas deliverability is expected to be 476 million m³/d (16.81 Bcf/d) in 2007 and 464 million m³/d (16.38 Bcf/d) in 2008.

The volumes for the update reference case are lower than what was projected in the 2006 EMA by 16 million m³/d (.58 Bcf/d) in 2007 and 27 million m³/d (.97 Bcf/d) in 2008.

Figure 2: Canadian Natural Gas Deliverability, Marketable Bcf/d

Source: Historical Data-primarily Provincial Supply/Disposition Reports for Natural Gas

Year	Actual Production*		Projection - 2006 EMA		Projection - May 2007 Update
					Low Case		Reference Case		High Case
	106 m3/d	Bcf/d	106 m3/d	Bcf/d	106 m3/d	Bcf/d	106 m3/d	Bcf/d/j	106 m3/d	Bcf/d
2006	485	17.12	488	17.22	-	-	-	-	-	-
2007			493	17.39	465	16.43	476	16.81	480	16.94
2008			492	17.35	436	15.39	464	16.38	478	16.87
* includes some estimates

Over the coming months, the Board will be undertaking a detailed review of the factors impacting gas deliverability, for the purpose of producing a new short-term Canadian gas deliverability EMA in the fall of 2007.