It should come as no surprise to anyone following the gasindustry that a recent survey of companies found the gas world tobe of “two minds” when it comes to supply-demand issues.

One finding of the recently completed Ziff Energy Group surveyof 79 companies is the industry is generally concerned about NorthAmerican supply availability. Indeed, most respondents said theydon’t think western Canadian gas production will be able to fillnew pipeline capacity to the Midwest. However, more than 60% ofrespondents said they expect Canadian production to grow by morethan 5% this year at current price levels.

In the United States, most respondents expect American gasproduction to be at least 19 Tcf, versus 18.8 Tcf in 1998. “Few ofthe respondents to our survey expect gas prices to decline, andmore than half expect prices to grow above current levels, but mostare concerned that high prices may put gas sales at risk,” saidPaul Ziff, Ziff Energy CEO.

More than three-fourths of respondents expect production fromwestern Canada to exceed 6 Tcf, as compared to 1998 production of5.8 Tcf. A rise to 6 Tcf this year would meet expected 1999 growthrequirements, Ziff said. And 20% expect Canadian gas production toexceed 7 Tcf at current price levels.

Looking at the demand side, almost all respondents said theythink gas sales will grow, but they are concerned gas for powergeneration could become non-competitive at burner-tip prices in therange of $2.75 to $3.00/MMBtu, which could occur at the expectedwellhead prices.

The greatest threat to growing pipeline capacity comes from lowprice differentials. But most respondents said they expect currentsmall differentials between Canadian and U.S. Gulf prices tocontinue for at lest the next two years.

When it comes to the outlook for gas prices, the consensus isdecidedly bullish. Fewer than 10% of respondents said they expectgas prices to decline this year, and more than half expect gasprices to rise. Along with that, more than two-thirds said gasprice volatility will increase, and more than 90% said the basisdifferential between Empress and Henry Hub prices will remain lessthan 40 cents/MMBtu over the next two years.

Ziff Energy Group is a leading North American consulting firmfocused on the gas industry and upstream oil and gas operatingperformance. Results of the survey were released in Houston Mondayat the firm’s annual North American Gas Strategies Conference.

Conference speaker Forrest Hoglund, chairman of Enron Oil &Gas (EOG), expressed a bullish attitude toward gas prices, as wellas some expectations that differ from those of the Ziff surveyrespondents.

“We think you’re going to see some upward pressure on gasprices, and we think you’re seeing it in the market already.”Hoglund blamed last year’s price downturn entirely on demand. Insupporting his expectation for higher prices, Hoglund pointed to anumber of factors. He said gas production has been relatively flatsince 1994 despite increasing levels of gas drilling. Currentdrilling is off 33% compared to a year ago. Hoglund said EOGexpects a decrease in 1999 domestic production and Canadianproduction growth has been slower than expected. Add these factorsto expected demand growth and you get “upward pressure on gasprices before year-end.”

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