With Canada’s natural gas production and storage levels at historical lows, Lehman Brothers analysts said Wednesday that Canadians likely will bid gas away from U.S. consumers and possibly storage, setting the stage for bullish gas prices.

Lehman’s Thomas Driscoll and Philip Skolnick noted in their analysis that total Canadian gas production year-to-date on May 31 was down an estimated 2-3% from last year. They predict a 2-4% decline in 2003 from a year ago, but if a planned shut-in of gas to support crude bitumin production in Alberta is implemented, natural gas production could fall between 3-5% this year.

Also, because of declining production, net exports to the United States were down an estimated 6-8% year-to-date May 31, said analysts. They estimate that net exports will be down “at least 5%” this year versus 2002.

Meanwhile, Canadian net gas inventories are 137 Bcf below last year’s levels and 90 Bcf below the five-year average, according to Lehman figures.

“In order for Canadian storage levels to get back to historical averages, gas consumption in Canada has to decline by an estimated 5-9% this year,” the analysts said. “We are skeptical that Canadian demand will decline by this much, and feel that Canadians are likely to bid gas away from U.S. consumers (which would result in lower than expected net exports to the U.S.) and/or storage.

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