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NEB Says Normal Winter Key to 'Strong' Drilling, Production

In its winter outlook forecast for Canada's energy markets, the National Energy Board (NEB) said Tuesday a normal winter season could lead to natural gas prices in the US$6-7/Mcf range, "with continued strong drilling and production." A colder-than-average winter, however, could lead to price spikes above $7, with increased liquefied natural gas (LNG) imports attracted by the higher prices.

If there is another mild winter, the NEB is forecasting gas prices will fall to $5/Mcf or less, which could lead to a "widespread decline" in drilling. A mild winter in Europe also could lead to more LNG tankers headed for U.S. markets.

"We have a situation where recent price declines are expected to stabilize, but the extent of price hikes is very much determined by the severity of winter weather," said NEB Chairman Kenneth Vollman. "There is also the potential impact from OPEC's recent cut in crude production. Delivering reliable energy market information to the Canadian public is more important than ever in the face of this price volatility."

NEB analysts said if energy demand rises as expected this month, "gas prices should start to move up to reflect the tighter balance," which is reflected in New York Mercantile Exchange gas futures prices "that are currently averaging around US$8.00/MMBtu for the January to March period."

Canadian electricity supply should be adequate to meet peak demand requirements this winter, NEB analysts said. "For the average Canadian, this means that the lights will stay on." The cost of the fuels used for power generation also is not expected to cause electricity prices to rise substantially this winter.

The heating oil inventories in the U.S. Northeast are above the five-year maximum, NEB noted. "An early end to the gasoline season allowed refiners to maximize the production of distillates like heating oil. In discussions with industry and associations, it appears that Canadian inventory levels are adequate to meet this winter's heating requirements."

For more information on the forecast, visit www.neb-one.gc.ca .

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