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
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
"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."
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