Canadian price spikes last week following a supply/demandforecast released by Nova Corp. indicate the market north of theborder could be in for a wild ride this winter. While marketobservers have long expected supply to fall short of new exportcapacity, marketers acted as if surprised when Nova forecast 13.8Bcf/d of throughput this winter, 700 MMcf/d more than winter1997/98 but far short of the 1.1 Bcf/d increase in export capacityplanned by Northern Border (700 MMcf/d) and TransCanada (417MMcf/d).

“On average, there is insufficient supply to match the increasein export capacity,” Nova said in its report. “Producers will bechallenged to fill storage and meet market demand in the summer of1999.”

Prices at Alberta Energy’s major market hub, AECO-C, spiked C31cents/Gj on Wednesday to C$2.59. Highs of C$2.70 were posted. Thelow for the week was $2.23. Prices were up C23 cents on average forthe week to $2.43/Gj (US$1.66/MMBtu).

“We have already seen a dramatic price spike this winter goingforward into next summer due to the increased capacity,” said oneCanadian marketer, quoting November-through-March term deals atC$2.80-84/Gj, which is 60 cents more than last winter. “We feel thenet effect of the increased pipeline capacity will make Alberta theplace to be in terms of having natural gas assets. This is alreadybecoming a reality in the prices,” he said.

Storage in the province is ample going into this winter, so somefeel the real crunch might not come until next summer, he added. Ifthere are normal or below normal temperatures this winter as aresult of the La Nina weather phenomenon, storage depletion rateswill be high. That will put upward pressure on prices through thestorage refill season next summer and fall, he said.

Nova said the drilling slow-down, which is related to thedepressed oil market, will shave about 200 MMcf/d off its previousforecast. Nova’s forecast still looks optimistic, however. It isexpecting 12.9 Bcf/d in field receipts this winter, up from 12.4Bcf/d this summer. Last year, the summer-winter increase was only100 MMcf/d, and well completions actually are down this yearcompared to last year. Rig utilization is at 60% of total rigs,which is down from 84% last year. While well connections areexpected to rise to 5,200 this winter from 4,303 last winter, wellcompletions, according to Nova, are expected to slide to 4,200 from4,265 last year.

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