Daily GPI / NGI All News Access

Survey: Industry Doubts Canadians Can Fill Pipes

Survey: Industry Doubts Canadians Can Fill Pipes

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

One finding of the recently completed Ziff Energy Group survey of 79 companies is the industry is generally concerned about North American supply availability. Indeed, most respondents said they don't think western Canadian gas production will be able to fill new pipeline capacity to the Midwest. However, more than 60% of respondents said they expect Canadian production to grow by more than 5% this year at current price levels.

In the United States, most respondents expect American gas production to be at least 19 Tcf, versus 18.8 Tcf in 1998. "Few of the respondents to our survey expect gas prices to decline, and more than half expect prices to grow above current levels, but most are concerned that high prices may put gas sales at risk," said Paul Ziff, Ziff Energy CEO.

More than three-fourths of respondents expect production from western Canada to exceed 6 Tcf, as compared to 1998 production of 5.8 Tcf. A rise to 6 Tcf this year would meet expected 1999 growth requirements, Ziff said. And 20% expect Canadian gas production to exceed 7 Tcf at current price levels.

Looking at the demand side, almost all respondents said they think gas sales will grow, but they are concerned gas for power generation could become non-competitive at burner-tip prices in the range of $2.75 to $3.00/MMBtu, which could occur at the expected wellhead prices.

The greatest threat to growing pipeline capacity comes from low price differentials. But most respondents said they expect current small differentials between Canadian and U.S. Gulf prices to continue for at lest the next two years.

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

Ziff Energy Group is a leading North American consulting firm focused on the gas industry and upstream oil and gas operating performance. Results of the survey were released in Houston Monday at 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 well as some expectations that differ from those of the Ziff survey respondents.

"We think you're going to see some upward pressure on gas prices, and we think you're seeing it in the market already." Hoglund blamed last year's price downturn entirely on demand. In supporting his expectation for higher prices, Hoglund pointed to a number of factors. He said gas production has been relatively flat since 1994 despite increasing levels of gas drilling. Current drilling is off 33% compared to a year ago. Hoglund said EOG expects a decrease in 1999 domestic production and Canadian production growth has been slower than expected. Add these factors to expected demand growth and you get "upward pressure on gas prices before year-end."

©Copyright 1999 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1231
Comments powered by Disqus