Canadian Producers Predicting Price Jumps
Canadian producers expect their natural gas prices to rise by as
much as 60% when the next heating season catches up with effects of
the 1998-99 drilling slump.
At Poco Petroleums Ltd., a top ten Canadian producer, Marketing
Vice President Bob Weiss says he would not be surprised to see a
jump into the range of C$4 (US$2.65) from this spring's C$2.50
(US$1.65). He also says he hopes the increase is not so dramatic,
because any such surge is bound to drive away prospective long-term
buyers, led by gas-fired power projects.
Variations on that theme have also been repeatedly sounded by
other top ten Canadian producers such as Anderson Exploration and
Alberta Energy. Poco only states the outlook more graphically
because it is the most bearish on gas supplies.
"The day of reckoning is coming," Weiss is telling all comers,
from financial analysts to journalists attending sessions on
prospects for Canadian gas. Poco reckons Canadian pipelines are
running with about 1 Bcf/d in capacity to spare because producers
have been unable to keep up with expansions. The firm suggests
there is an element of illusion to Canadian drilling figures, which
record more than 1,500 wells drilled in first-quarter 1999 or about
the same number as a year earlier. Many of the wells are thought to
be re-entries of old sites to pick up temporary supplies of
short-lived reserves for the lowest possible cost.
At the same time, the Canadians believe production in the United
States is falling off by two to three bcf daily as a result of
disappointments in the Gulf of Mexico and the general deterioration
of drilling due to the past year of poor oil prices. Just how much
production capacity is being lost in the U.S. will become readily
apparent in November, predicted Poco President Craig Stewart. His
organization sees highly-touted deep drilling in the Gulf of Mexico
as a disappointment because much of the gas involved is associated
with oil, which hurts its economics, and it is less abundant than
many believed in any case. He acknowledged he has been saying much
the same thing about U.S. supplies for more than two years, but
added that his reception by the analyst and economist community has
become considerably more accepting in recent months.
Alberta Energy, while less ready to debate U.S. gas performance,
is predicting similar results. From the Canadian perspective, there
will be "a very strong continental gas market." The company is
continuing an aggressive drilling program aimed at achieving 900
MMcf/d this year and 1 Bcf/d in 2000.
Alberta Energy president Gwyn Morgan told the company's annual
meeting that "historic market changes" are at hand, "as new gas
export pipelines give Canadian producers unrestricted access to
U.S. markets." Counting 1998-99 expansions by the TransCanada and
Foothills-Northern Border systems plus the Alliance Pipeline
Project, now under construction, about 2.5 Bcf/d will be added to
Canadian export capacity by the fall of 2000.
Only time will tell how much of the new capacity will go unused,
and for how long, but that is being described as the pipelines'
problem except to the extent that shippers wind up paying for space
they cannot fill. Morgan said the bottom line is, "Canadian gas
producers no longer have to worry about 'trapped gas' in Alberta.
The change, to where Canadian natural gas is no longer sold below
its international value, represents a transition that I've awaited
for 30 years."
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