Strongly influenced by the price of crude oil, Canadian natural gas prices are expected to remain high through 2006, while at the same time, gas production will be flat, according to the latest market assessment by the National Energy Board (NEB).

NEB Chairman Kenneth Vollman said that “given the relationship between crude oil prices and natural gas prices and the current tight supply/demand balance, which can and will be exacerbated by severe weather, consumers should expect natural gas prices to remain high and volatile.” The NEB’s short-term outlook on natural gas and natural gas liquids (NGL), the Energy Market Assessment (EMA), provides comprehensive information on the complex natural gas and NGL industries, and highlights the main issues in the near term.

The profile for Canadian natural gas production has flattened, while demand, led by the robust growth in oil sands operations, continues to increase. Demand for natural gas from oil sands operations could reach 1.01 Bcf/d by 4Q2006, an increase of 0.29 Bcf/d over 2004. Other key factors in the demand growth are the increasing requirements to operate gas-fired generation. “Demand for natural gas for power generation could increase even further in Canada primarily due to the replacement of coal-fired electricity generation in Ontario.”

As the nature and location of North American gas supply changes, the NEB report said the existing use of natural gas infrastructure also will shift. Deliverability of conventional gas from Canada’s largest producing province, Alberta, is expected to decline over the projection period, while gains are expected from British Columbia and Saskatchewan. Most U.S. gas production growth is expected to be in the Rocky Mountains.

“Combined with the expected increase in liquefied natural gas (LNG) imports into North America, it is expected that the volume and patterns of gas flows through existing pipeline infrastructure will undergo change. In addition, new transportation infrastructure has also been proposed by industry participants.”

Limited growth is expected for NGLs through 2006, the NEB stated. “The economics of NGL extraction is based upon the price of natural gas relative to the NGL component prices. High natural gas prices relative to the price of oil discourage the extraction of NGLs. The increase in oil sands demand for natural gas reduces the amount of liquids-rich gas available at the straddle plants.”

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