Buoyed by sustained strength in exports as well as snap reactions to cold fronts on commodity markets, Canadian forecasters have raised their expectations for 2003 natural gas prices.

At the conservative end of the scale, the Calgary energy stocks boutique of Peters & Co. predicts a 2003 average of US$4.25 per MMBtu, up 13% or 50 cents from its last forecast. Rival FirstEnergy Capital Corp., which takes a gloomier view on supplies and a brighter one on demand, is calling for US$5.60, up 20% or 90 cents.

Although the unanimous optimism has spawned jokes about history teaching that a market drop must be imminent, the behavior of 60% of Canadian production — exports to the United States — is making it hard not to be a believer. Export deliveries, prices and revenues all surged in the first quarter of the current gas contract year ending Oct. 31, according to records kept on the trade by the National Energy Board.

In the three-month period between Nov. 1, 2002 and Jan. 31, 2003, Canadian gas export sales volumes rose by 4.5% to 972 Bcf, compared to 931 Bcf in the same period a year earlier. In the opening three months of the current contract, the average price fetched by Canadian gas at the U.S. border jumped by 57% to US$4.24/MMBtu compared to US$2.70 a year earlier. Export revenues leaped by 63% to US$4.1 billion from US$2.5 billion.

It remains to be seen whether the recovery in delivered volumes will be sustained. By the NEB’s count gas exports to the U.S. retreated in January to 312 Bcf or 5.7% less than the 330 Bcf shipped in the same month last year. Rising prices more than offset the slippage in volumes during January. Gas export revenues for the month climbed by 71% to US$1.5 billion compared to US$883 million in January of 2002, thanks to an 82% gain in average price to US$4.81/MMBtu from US$2.64.

There were wide variations in the performance of the chief export destination markets for Canadian gas during the opening three months of the contract year, reflecting different weather and economic conditions. First quarter deliveries to the northeastern U.S. jumped by 17% to 322 Bcf and the average price fetched by Canadian gas going there rose by 55% to US$4.61/MMBtu.

Canadian exports to the U.S. Middle West increased by 9% to 405 Bcf in the November-January period, and prices for them rose by 66.4% to US$4.24. First quarter Canadian sales to California dropped by 2% to 142 Bcf, and prices lagged eastern markets by rising just 46% to US$3.64. Exports to the Pacific Northwest region of the U.S. fell by 23% to 103 Bcf and prices gained a comparatively modest 40% to US$3.89.

Among the Canadian analysts, Peters & Co. foresees a banner year for the supply side due to continuing support for prices that it expects to be provided by geopolitical strife, the after-effects of the cold winter and spring, and needs to refill depleted storage. On top of those factors, FirstEnergy foresees a contraction in both Canadian and American productive capacity and increased demand which will not easily be driven away, including an estimated 50,000 MW of gas-fired power generation added to the U.S. electricity grid over the past two years.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.