NGI The Weekly Gas Market Report
A steep price spike highlighted a lasting change in natural gasprices at Sumas, the Washington state entry point for exports fromBritish Columbia, say Canadian producers and marketers.
The spike-which peaked at $25/MMBtu for flow on Dec. 21 andremained above $6 last Monday and Tuesday-was credited chiefly toconstraints on Northwest Pipeline, which picks up gas fromWestcoast Energy’s B.C. grid at Sumas. But the spike went so highbecause the transportation problem also coincided with a cold snapthat underlined changes over the past two heating seasons in thesupply and demand fundamentals for B.C. gas.
From being the lowest-priced export point, where prices used tostagnate around $1 for months at a time, Sumas has become aconsistent performer for producers with B.C. wells such as PocoPetroleum Ltd., which has become one of the province’s leadingdrillers.
Poco President Craig Stewart said it turned its attention togas-rich northeastern B.C. from shallower, easier drilling on theAlberta plains as a result of marketing experience. Starting about18 months ago, Poco’s export agents detected a strong trend forproduction from the Rocky Mountain region of the United States toflow east as a result of American pipeline developments that raised”take-away” capacity. That coincided with demand in the region dueto a strong economy and increasing reliance on gas-fired electricgeneration.
The eastbound Rocky Mountain supplies both opened up room forCanadian exports in the U.S. Pacific Northwest and led to a generaltightening up of the supply picture in the region. “It became muchmore of a market in equilibrium in the Pacific Northwest,” Stewartsaid.
The trend became strong enough to trigger a C$250 million(US$170 million) asset and drilling-prospects purchase this year byPoco in the remote but prolific Monkman gas field in northeasternB.C. Even before the pre-Christmas spike, Sumas prices were nudgingUS$3 per MMBtu, or about $1 more than other destinations forCanadian supplies.
Stewart predicted B.C. gas producers can count on an anticipatedgeneral firming of Canadian prices for some time to come. Whiledrilling is expected to fall behind pipeline capacity additionseverywhere, producers like Poco believe the lag will be especiallylong in B.C. Supply development there amounts to frontierexploration in forbidding country west of the Alaska Highway as itstretches north from its starting point at Dawson Creek past FortSt. John and Fort Nelson.
Wells in northeastern B.C. areas like Monkman have repeatedlyyielded flows approaching 90 MMcf/d. But they are time-consuming,multimillion-dollar exercises in deep drilling in remote mountainterrain where producers have to hack rig sites and equipment roadsout of virgin bush, while adhering to strict environmental controlsand negotiating access with a touchy native population.
“It’s as difficult drilling as you can do in Canada,” Stewartsaid. The Canadian producer community is scrambling to switchdrilling targets to gas from oil. But producers who have alwaysgiven priority to gas like Poco believe they will reap the benefitsof a tightening market for months or even a year or two beforeothers catch up and change the supply picture again. Especially innew areas like B.C., Stewart said, “you don’t flip on and offexploration. The fashion is gas. The reality is it takes two tothree years to develop an intelligent exploration program.”
Gordon Jaremko, Calgary
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