The natural gas industry in Western Canada, has seen tremendous changes in the last decade, resulting in significantly increased horizontal well initial production rates. It is of interest to review some of the history of "allowables" and "prorationing", originally placed on Texas oil production in the 1930's, and also used in Alberta, in the past. It is hypothesized that allowable rate restrictions on high productivity gas wells, could restrict gas output enough, to provide a more stable market.
This paper examines output from a large "Control Area" in western Alberta. A review of the new wells drilled during the last 5 years, that produce a total of 6.2 Bcf/D, shows a wide distribution of productivity from high rate horizontal wells, contrasted with lower rate gas wells, and significant solution gas production from horizontal oil wells. Production from 10,170 oil and gas wells is reviewed, to see how applying different maximum allowable rates to individual wells, could change the area's total production rate.
Individual well decline rates might be high, but the aggregate production is significant, and 6.2 Bcf/D, of Alberta's total current raw gas production of 13.1 Bcf/D, comes from wells finished drilling, after 2013. The intent with many of the newer wells drilled in Alberta, has been to target liquids rich shale plays, to produce condensate or oil. Unfortunately, while liquid production might start out at decent rates, wells quickly produce a higher percentage of gas, over time. The end result is still more natural gas production, further squeezing into a maxed-out transportation system, causing additional localized downward price stress. Allowables are a regulatory tool that can be used to more fairly give market access for all producers, to the gas transportation system, and provide more of a price floor, by reducing excess production. The anticipation is that a slightly reduced total gas rate, could bring about a higher average price, as the local market is brought into a better supply/demand balance.
LNG plants, currently under construction on the west coast of British Columbia, will eventually provide some access to world LNG markets. Currently, the gas from British Columbia flows into Alberta, where it places additional strain on the gas transportation system, already full with gas from recently drilled, high rate horizontal wells. This has resulted in Alberta average market natural gas prices reaching decade lows, to the point where prices can barely cover operating costs, let alone pay capital costs, resulting in the shut-in of many uneconomic wells. Restricting production from higher rate gas wells, may cause other potential "unintended consequences", but needs to be considered as a way to help restore higher prices, in addition to working on other solutions, that industry has proposed.