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Arctic Gas Becomes a Necessity

Arctic Gas Becomes a Necessity

Alberta spot sales have reached C$7/Mcf (US$4.83) and central Canadian distributors are warning customers to expect an expensive winter. Analysts see no end to the tight markets. But natural-gas producers say they have found a way out --- tap the Arctic.

Build pipeline connections both to Alaska and the Mackenzie Delta, said BP Energy Canada president Tim Holt and Anderson Exploration founder J.C. Anderson. Holt set targets echoed by Phillips Alaska President Kevin Myers: a decision on a route by mid-2001, followed by pipeline applications before the end of next year in order to commence deliveries in 2006 or '07. Although the third partner in gas reserves at Prudhoe Bay did not step forward, the others said ExxonMobil has agreed with the timetable for making decisions as part of their collaborative review of Arctic development prospects.

The gas supply issue and the northern frontier have leaped to the top of the industry agenda, dominating conferences on the Canadian industry outlook held in Calgary by Ziff Energy Group and in San Francisco by Raymond James & Associates. Holt, a veteran of the BP organization in Alaska before he took over its Canadian arm earlier this year, made it plain that all the interest is not just talk.

When questioned by a skeptic about the likely effects on markets if an additional 4 Bcf came on by connecting both Alaskan and Canadian Arctic gas at or near the same time before 2010, Holt said producers have learned to live with consequences. What would be the effects on prices? "I don't know," Holt said. "We're going to do our darndest to get the gas developed as quickly as we can. We do not know how to forecast prices or the impact of any particular project. What we are good at is development."

Holt said that while work is continuing on possible liquefied natural gas or gas-to-liquids projects in Alaska, both alternatives to pipelines remain long-range studies that will require technical breakthroughs to become economic. The producers are nowhere near deciding on a pipeline route yet, he added.

In Canada, the consensus scenario has North American demand reaching 30 Tcf/year. It also is widely accepted that the western supply basin is coming up against limitations, Arctic pipeline and production technology has improved sharply, and drilling plays in the deep waters of the Gulf of Mexico are limited by costs and the availability of equipment.

A new development benefits study done for the Northwest Territories government by the Canadian Energy Research Institute, echoes earlier work by Purvin & Gertz Inc. that Arctic gas is a live proposition if prices stay high enough to average C$3.50/Mcf (US$2.40) or better. While few Canadian traders expect current highs to last past the forthcoming heating season, prices are widely forecast to stay at least in the C$3-$4 range because new pipeline capacity will prevent a recurrence of surplus "trapped gas" dragging down the Canadian market.

In Toronto, the Ontario Natural Gas Association issued a statement warning consumers to expect prices to stay high for the winter and to accept them as a fair result of fundamental economic trends. Chair Jasmine Urisk said "the current price reflects sharply rising demand for natural gas in a robust economy. It is the fuel of choice in many applications because of its competitive cost, advanced high-efficiency technologies and environmental benefits." Ontario gas bills, while up sharply, are still no higher than they were 15 years ago on an inflation-adjusted basis, the association added.

The Canadian Gas Association, also based in Toronto as primarily a voice of the distributors, echoed the Ontario group. In a departure from history for Canadian politics, federal parties gearing up for an election made no attacks on the oil and gas supply side. Instead, Finance Minister Paul Martin put fuel-cost rebates for low-income earners into a pre-election mini-budget.

Gordon Jaremko, Calgary

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