While discounting current highs as seasonal and political, the Canadian natural gas sector sees the North American market shaping up as strong enough to stimulate a fresh and sustained run at expanding supplies.

Nexen Marketing president Bob Black voiced, in an interview, a spreading Canadian consensus: “Prices of $3-$4 (US per MMBtu) are very sustainable and reasonably predictable over the long term.” Black maintained that conditions are ripe for a long-awaited revival of gas exploration. The need was underlined by a forecast that western Canadian supplies could decline 4% by 2004 unless activity spreads beyond low-cost shallow drilling targets, in a “deliverability” status report released by the National Energy Board. Black said “we’re in a very robust environment. For any gas that producers bring on, there is a market.”

Such signals reach far and wide in Canada, where Nexen Marketing is a prized survivor of hard times among energy merchants triggered by the demise of Enron Corp. In the year since that debacle, volumes handled by the wholly-owned marketing arm of producer Nexen Inc. (formerly Canadian Occidental) have grown by about 50% into the range of 4 Bcf/d.

Nexen Marketing ranked among the top 10 exporters of Canadian gas to the United States even before the Enron collapse. Black attributed the growth to staying anchored in trading physical production rather than being sidetracked into paper derivatives, plus an approach that relies on fees for tangible marketing services rather than quick buying for fast resale.

Talisman Energy Inc. started the Canadian gas expansion ball rolling with an announcement of intentions to spend 94% of a company-record C$364-million (US$235-million) North American exploration budget for 2003 on gas drilling. While Talisman intends to chase some targets in the U.S., the lion’s share of the program will be in the richest western Canadian gas areas along the eastern slopes of the Rocky Mountains.

Industry sources predicted more announcements of accelerated activity on the Canadian gas supply side as producers nail down 2003 budgets. Announcements of corporate budgets were held up this year due to confusion over the federal government’s ratification of the Kyoto Protocol on reducing greenhouse-gas emissions.

Just two days after the Kyoto formalities were completed on Dec. 17, Natural Resources Minister Herb Dhaliwal took the sting out of the action by clarifying federal intentions in a letter to the Canadian Association of Petroleum Producers. The document pledged that the Kyoto implementation policy will tolerate industry growth by concentrating on a relative performance standard — “emissions intensity” or efficiency — rather than on absolute tonnage totals of carbon-dioxide generated as a byproduct of oil and gas production.

Dhaliwal also set a cap on the emissions-reduction target of “not more than 15% below projected business-as-usual levels for 2010.” This was greeted with relief as a far cry from the original Kyoto target for Canada of about 6% below 1990 carbon dioxide emissions. Dhaliwal also assured that the cost of credits needed to offset emissions beyond the reductions will be limited to C$15 per ton (US$9.68) of carbon-dioxide, a figure that exceeded industry hopes for C$10 (US$6.45) but much less than the worst fears of C$50 (US$32.25) or more.

The Talisman announcement likely foreshadowed a series of producer commitments to step up Canadian supply activity. The trend showed in an annual spending intentions survey by Salomon Smith Barney, which includes U.S. producers with wholly-owned Canadian subsidiaries such as ExxonMobil and Apache. The Wall Street firm projected a 5.7% increase in exploration and production expenditures in Canada, generating a 7% acceleration of drilling in 2003.

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