Canadian producers expect their natural gas prices to rise by asmuch as 60% when the next heating season catches up with effects ofthe 1998-99 drilling slump.

At Poco Petroleums Ltd., a top ten Canadian producer, MarketingVice President Bob Weiss says he would not be surprised to see ajump 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-termbuyers, led by gas-fired power projects.

Variations on that theme have also been repeatedly sounded byother top ten Canadian producers such as Anderson Exploration andAlberta Energy. Poco only states the outlook more graphicallybecause 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 onprospects for Canadian gas. Poco reckons Canadian pipelines arerunning with about 1 Bcf/d in capacity to spare because producershave been unable to keep up with expansions. The firm suggeststhere is an element of illusion to Canadian drilling figures, whichrecord more than 1,500 wells drilled in first-quarter 1999 or aboutthe same number as a year earlier. Many of the wells are thought tobe re-entries of old sites to pick up temporary supplies ofshort-lived reserves for the lowest possible cost.

At the same time, the Canadians believe production in the UnitedStates is falling off by two to three bcf daily as a result ofdisappointments in the Gulf of Mexico and the general deteriorationof drilling due to the past year of poor oil prices. Just how muchproduction capacity is being lost in the U.S. will become readilyapparent in November, predicted Poco President Craig Stewart. Hisorganization sees highly-touted deep drilling in the Gulf of Mexicoas a disappointment because much of the gas involved is associatedwith oil, which hurts its economics, and it is less abundant thanmany believed in any case. He acknowledged he has been saying muchthe same thing about U.S. supplies for more than two years, butadded that his reception by the analyst and economist community hasbecome 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, therewill be “a very strong continental gas market.” The company iscontinuing an aggressive drilling program aimed at achieving 900MMcf/d this year and 1 Bcf/d in 2000.

Alberta Energy president Gwyn Morgan told the company’s annualmeeting that “historic market changes” are at hand, “as new gasexport pipelines give Canadian producers unrestricted access toU.S. markets.” Counting 1998-99 expansions by the TransCanada andFoothills-Northern Border systems plus the Alliance PipelineProject, now under construction, about 2.5 Bcf/d will be added toCanadian 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 spacethey cannot fill. Morgan said the bottom line is, “Canadian gasproducers no longer have to worry about ‘trapped gas’ in Alberta.The change, to where Canadian natural gas is no longer sold belowits international value, represents a transition that I’ve awaitedfor 30 years.”

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