Amid persistent questions about supplies and sustained highprices, the Canadian natural gas community heard a reassuring word— it is not an issue in the federal election, and its defendersare armed with answers if critics step forward before the Nov. 27vote. The good word — and the defense arsenal — came from theNational Energy Board, in a 61-page market assessment released asthe Canadian campaign entered its second week at the same time asfalling thermometers signaled the onset of heating season.

The report concluded that the “continental market” for gas istreating Canadian consumers fairly, the current tightness is anatural part of a normal economic cycle and the tables will turn intheir favor again. In the more formal terms of the NEB’s”market-based procedure” for overseeing exports, there is noevidence that Canadian consumers have the right to halt continuingexpansion of sales to the United States on the only allowed grounds— that domestic gas users are being denied supplies at fairprices.

Although there has been some public grumbling over the up toseven-fold price increases in Canada as pipeline expansionseliminated supply gluts known as “trapped gas,” the NEB’s favorableverdict is unqualified. The board reports “a review of the annualweighted average border price for Alberta gas indicates thatdomestic gas users paid less than export customers until 1998, atwhich point the two prices converged. This indicates thatCanadians have had access to natural gas on terms, including price,no less favorable than export customers.”

The NEB, while refusing to be tied down to specific predictions,suggests that the seller’s market of today is bound to head back inthe opposite direction again. “Natural gas producers throughoutNorth America have been responding to the current high priceenvironment with aggressive drilling programs. In time, there willbe a supply and a demand response, and accompanying relief innatural gas prices is expected.”

The board continues to describe the Canadian resource base asabundant, and repeats the confidence that led it to replace strictsupply policing and border controls with the market-based procedurein 1987. “A period of market adjustment is necessary any time thedynamic between supply, transportation and demand is significantlychanged. It is difficult, if not impossible, to predict withcertainty any movements in the commodity markets.”

The NEB observed that a lag in the gas supply response to thetight market will be especially predictable this time aroundbecause the severe 1997-98 slump in oil prices cut all activity bythe industry. The Canadian Energy Research Institute, asemi-official voice supported by a cross-section of government andindustry authorities, suggested it will be later rather than soonerbefore the buyers’ market returns. CERI officials voiced skepticismover results of an annual gas deliverability survey that indicatedCanadian producers expect to add 2 Bcf/d of capacity by 2002.

The deliverability plan equals current estimates of excesspipeline capacity when Alliance Pipeline commences deliveries laterthis month. Project spokesman Jay Godfrey confirmed that Alliancewill be able to carry about 1.5 Bcf/d in order to guarantee itsfirm-service commitments of 1.3 billion. Shippers are able to bookextra capacity for the cost of the compressor fuel needed to useit. Godfrey, echoing the producers who founded the project beforeselling it to pipeline companies, said Alliance sees nothing wrongwith excess capacity in the grid on principle. In practice,Alliance expects to be full because its shippers have contractsobliging them to pay for its capacity whether they use it or not,leaving the spare room to open up on elsewhere, chiefly on theTransCanada-Nova systems already plagued by non-renewals of serviceagreements.

CERI officials said their computer modeling suggests it would berealistic to expect western Canadian supplies to grow by only300-400 MMcf/d in 2001. Although numbers of gas wells areproliferating, 60% of completions are shallow to tap low-costreserves that can be marketed quickly, but also run dry rapidly.Results take longer from more expensive exploration playsdeveloping along the Rocky Mountain foothills in western Alberta,northeastern British Columbia and the southern NorthwestTerritories. Canadian producers remain more optimistic than CERI,observing that exploration results are starting to come in and moresuccesses are on the horizon.

In the West, a group led by Chevron Canada started production byits second find in the Liard area of the territories and projectedflows from the single new well will reach 50 MMcf/d within a weekthen potentially rise to 75 MMcf/d.

On the East Coast a producers’ consortium secured leases lastweek for about 3,850 square miles of gas drilling prospectsoffshore of Nova Scotia in trade for commitments to do C$191.76million (US$132 million) in exploration work.

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