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

Build pipeline connections both to Alaska and the MackenzieDelta, said BP Energy Canada president Tim Holt and AndersonExploration founder J.C. Anderson. Holt set targets echoed byPhillips Alaska President Kevin Myers: a decision on a route bymid-2001, followed by pipeline applications before the end of nextyear in order to commence deliveries in 2006 or ’07. Although thethird partner in gas reserves at Prudhoe Bay did not step forward,the others said ExxonMobil has agreed with the timetable for makingdecisions as part of their collaborative review of Arcticdevelopment prospects.

The gas supply issue and the northern frontier have leaped tothe top of the industry agenda, dominating conferences on theCanadian industry outlook held in Calgary by Ziff Energy Group andin San Francisco by Raymond James & Associates. Holt, a veteranof the BP organization in Alaska before he took over its Canadianarm earlier this year, made it plain that all the interest is notjust talk.

When questioned by a skeptic about the likely effects on marketsif an additional 4 Bcf came on by connecting both Alaskan andCanadian Arctic gas at or near the same time before 2010, Holt saidproducers have learned to live with consequences. What would be theeffects on prices? “I don’t know,” Holt said. “We’re going to doour darndest to get the gas developed as quickly as we can. We donot know how to forecast prices or the impact of any particularproject. What we are good at is development.”

Holt said that while work is continuing on possible liquefiednatural gas or gas-to-liquids projects in Alaska, both alternativesto pipelines remain long-range studies that will require technicalbreakthroughs to become economic. The producers are nowhere neardeciding on a pipeline route yet, he added.

In Canada, the consensus scenario has North American demandreaching 30 Tcf/year. It also is widely accepted that the westernsupply basin is coming up against limitations, Arctic pipeline andproduction technology has improved sharply, and drilling plays inthe deep waters of the Gulf of Mexico are limited by costs and theavailability of equipment.

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

In Toronto, the Ontario Natural Gas Association issued astatement warning consumers to expect prices to stay high for thewinter and to accept them as a fair result of fundamental economictrends. Chair Jasmine Urisk said “the current price reflectssharply rising demand for natural gas in a robust economy. It isthe fuel of choice in many applications because of its competitivecost, advanced high-efficiency technologies and environmentalbenefits.” Ontario gas bills, while up sharply, are still no higherthan they were 15 years ago on an inflation-adjusted basis, theassociation added.

The Canadian Gas Association, also based in Toronto as primarilya voice of the distributors, echoed the Ontario group. In adeparture from history for Canadian politics, federal partiesgearing up for an election made no attacks on the oil and gassupply side. Instead, Finance Minister Paul Martin put fuel-costrebates for low-income earners into a pre-election mini-budget.

Gordon Jaremko, Calgary

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