With new outlets to markets the Canadian natural gas industry ismoving into a new stage with higher prices dictating a change inthe priorities of doing business.

Brant Sangster, marketing vice president of Petro-Canada, saidthe new times call for master jugglers of two moving targets – thecosts of transporting Canadian gas and the price it fetches withall North America for a stage.

With new pipelines being completed on top of expansions by oldones, Sangster told a Calgary audience at a conference sponsored bythe Ziff Energy Group, the Canadian gas community is fulfilling adream that he called “connectivity.” But this process ofestablishing links to every significant energysales outlet on thecontinent “changes the marketplace fundamentally and irrevocably.It raises the importance of price and transportation management. Itwill change how a company is perceived and measured by thefinancial community. It is worth the effort to a natural gasproducer.”

In the connected Canadian gas community, making the rightdecisions about sales destinations and the route traveled make farmore difference to the price fetched by production than theindustry’s traditional crafts.Petro-Canada calculates that forevery MMBtu of Canadian production, transportation decisions canspell gains or losses of C25 cents (US17 cents) while choices ofwhat markets to pursue and when make C50 cent differences. Bycontrast, the traditional Canadian focus on gas finding anddevelopment costs deals with modest effects. For each MMBtu,concentrating on resource land costs makes a difference in the C3cent range, development drilling C4 cents, producton facilities C5cents and exploration C5 cents (US3.3 cents). Cutting costs ofoperations can make a bigger difference, but as a C10 cent factorremains a far smaller variable than gas prices and transportation.

Managing risks of movements in exchange rates between the U.S.and Canadian dollars can make as much difference in the valuereceived for gas as operating, finding and development costscombined, Petro-Canada’s calculations show.

But multibillion-dollar expansions of the pipeline grid and thestrain of mastering the resulting complications of a continentaltrading game are worth the effort, Sangster suggested. Canadianbenchmark gas prices have gained about C$1.06 (US71 cents) perMMBtu since 1996 at Alberta Energy Co.’s AECO trading and storagehub. At the Sumas export point for British Columbia gas travellingvia Westcoast Energy’s provincial pipeline web, a gain of C97 cents(US65 cents) has nearly matched the improvement in Alberta.

The dynamics described by Petro-Canada also go a long waytowards explaining TransCanada’s jumping into the retail marketwith both feet in its alliance announced last week with SearsCanada. The “connectivity” described by Petro-Canada has turned thetables on Canadian markets, tightening up supplies to the pointwhere the industry now operates in a “high price environment” thatis raising home heating costs across the country and creatingopportunities to make retail market competition pay.

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