Understanding a resource empowers you to understand the opportunities and risks available concerning investments in and use of a product.

Canada's Energy Outlook (page ix)
Natural gas production increases
from 5.3 trillion cubic feet (Tcf) in 1995
to reach 6.9 Tcf in 2020.

Domestic demand increases from 2.5 Tcf in 1995
to 2.8 Tcf in 2000 and 3.2 Tcf in 2020.

Natural gas exports will continue to increase
from 2.8 Tcf in 1995
to 3.1 Tcf in 2000 and 3.7 Tcf in 2020.

The average number of active drilling rigs in Western Canada for July, 1999, at 245, is the lowest since 1993, because of the 'stifling effects of high debt levels and constrained cash flows' on industry producers, Calgary-based FirstEnergy Capital Corp. said in its latest industry report. ...

Oil orthodoxies.

Reserves debate

A later speaker at the CGES conference was Colin Campbell, associate consultant at Petroconsultants SA, Geneva. He said that his own views about inadequacies in reserves estimation have only recently been accepted.

Campbell has argued down the years that the way companies and governments report reserves is misleading, and it means that worldwide production will peak earlier than most economists expect (OGI, Dec. 29, 1997, p. 33).

"I found," said Campbell, "that 90% of today's production comes from fields more than 20 years old and 70% from fields more than 30 years old. These are well-known old field of little technical possibility for huge late revisions."

"In Global terms," said Campbell, "the simplest model shows that peak production will come when half the ultimate reserves, namely 900 billion bbl, has been produced. On present trends, that will be around 2001."
[The Reality was that 2006 was confirmed as the year of Peak Oil production.]

Because of this, Campbell expects that there will be a worldwide oil price shock around 2000, followed by the onset of a chronic physical shortage of oil about 10 years later. ....

PROVEN RESERVE REQUIREMENTS -- remember that phrase.
Until the late 1980s, the industry was required to maintain proven reserves for their customers which would be sufficient for 25 years of supply. Producers could not drill enough wells fast enough to replace dying wells AND allow the industry to expand at the rate which the government wanted in respect to pollution problems with other energy sources.

The government typically REACTED to the pollution crisis rather than focus on reducing energy demand to a maintained level. In promoting natural gas conversion from other energy sources, WITHOUT the political complication of energy use flat-line growth. Such would have meant an economic recession, UNLESS technological developments made increased economic activity possible with the energy supplies which could be produced. The political regulators did not trust this process of technological innovation and citizen self-responsibility.

The 25 year reserve requirement was DECREASED to 9 years.
This made much more gas available for sale from already defined producing areas. The inherent risk would always be that the amount of drilling done in any one year might fall below the ability to replace the total of

• 20% of wells going dry EACH YEAR
  (number increasing along with total number of producing wells)

• an increasing demand developed through promotion, government incentive, cost-to-end-user, and sales --- which would require an annually increasing number of wells to cover demand AND reserve.

Drilling the same number of wells each year, for the industry, would place the consumer in an increasing risk position. The demand requirement for wells and the dry well numbers is increasing. Yet we have seen numbers of wells drilled for 1997 DECREASE from earlier years. To really determine with greater accuracy the position we are at, total number of producing wells by year is required for the past decade. I do not have these numbers at this time.

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Natural gas in storage complicates an understanding of the issue of availability and reserves by suggesting that production and reserves are adequate for a low risk future. While gas-in-storage is at a higher level than ever before, so is the number of users. Demand is not great at the moment (December, 1998). This makes stored gas look over-abundant.

Stored gas only represents a quantity of gas which has been pumped out during low use seasons and purchased by suppliers at low market rates. A great amount of this gas is sold to consumers during the higher demand seasons --- at typically higher market rates. This provides a profit for the supplier-storage company which allows it to satisfy its shareholders and pay for its cost of building and maintaining storage facilities. In essence, stored gas supplies represent a potential one-year supply.

Why is/was there a gas glut in late 1998. A number of factors --- which have all been predicted against by the media and industry analysts --- have occurred.

• Asian market disaster -
  loss of market for up to 6 years to produce an artificial lack of demand through inability to pay;

• La Nina unpredictability -
  following a recent history of weather extremes encouraging panic preparation for a potential reality that is 4 months overdue, and could arrive any time.

• Politics -
  high Iraq production to enable humanitarian relief;
  high production from many countries in high debt;
  (which have no concern for reserves, just sales);
  uncertainty of OPEC and other multi-national organizations.

In summary, drilling and engineering companies cannot bring producing wells into activity fast enough to replace dying wells (17% to 20% per YEAR), PLUS meet an increased demand (almost instantaneous) of 30%, resulting from the opening of new pipelines to foreign markets (USA).