Gas claims hot spot in the oilpatch - Higher prices should fuel wave of exploration
Financial Post, January 2
By Claudia Cattaneo
With fickle winter weather having full discretion over whether tight natural gas supplies will escalate into a full blown energy crisis by the spring, Canada's oil and gas industry will be consumed with finding, producing and making big bucks from the clean-burning fuel in 2001.
"That is really where the momentum is in the sector," said Christopher Theal, an industry analyst at CIBC World Markets.
"It's a whole new world. Since the last decline in the oil price, we have been a natural gas industry."
Even the most conservative estimates have natural gas prices moving to at least twice the levels of a couple of years ago -- averaging US$4 to US$4.50 per million British thermal units next year on the New York Mercantile Exchange, compared to US$4.13 on average in 2000 and US$2.27 in 1999.
Thanks to the December start of the Alliance natural gas pipeline that removed transportation constraints between Canada and the U.S., Alberta prices will track closely those in the U.S. Under the same conservative scenarios, they're expected to average about $5 to $6 per thousand cubic feet in Alberta in 2001.
But with every dip in temperature, particularly in major U.S. and Canadian markets, prices could spike to extremes as the market reacts to high demand, sinking North American inventories and flat production.
Inventories could fall so low by the end of the winter that replenishing them will be "nearly impossible," according to Cambridge Energy Research Associates, a Cambridge, Mass.-based research group.
The new environment, while alarming for natural gas consumers, inflation and economic growth, means the industry can afford a higher level of risk and hunt for new reserves in deeper and farther horizons.
Major producers like Alberta Energy Co., Gulf Canada Resources Ltd., PanCanadian Petroleum Ltd., Talisman Energy Inc., Anderson Exploration Ltd., Petro-Canada, have announced increases in 2001 capital spending to support big natural gas exploration programs -- but also higher costs because of oilfield inflation and a move to more difficult plays.
One of 2001's defining moments for the sector will come when an Imperial Oil Ltd.-led group that is studying the feasibility of developing natural gas reserves found three decades ago in the Mackenzie Delta-Beaufort Sea region decides whether to move ahead and support the building of a pipeline.
Just as significant will be exploration efforts in the area, spearheaded by companies like Anderson and Petro-Canada that are gunning for share price-rocking finds.
These developments, particularly if combined with a parallel push to develop natural gas reserves across the border in Alaska, would mark the start of a new, world-class energy frontier.
The strong outlook for natural gas is expected to draw capital into the industry, after it was somewhat marginalized in 2000 by investors moonstruck by technology stocks. The sector "will have a higher degree of profile than this year [2000], there is no question about that, especially if oil prices stabilize," said industry analyst Paul McGarvey.
The outlook for the industry's oil business is less heartwarming, but still solid. After reaching their highest level in decades, oil prices hit their turning point sooner than expected late in 2000 and seem headed for softer, consumer-pleasing levels in 2001.
That's because world production, which rose in 2000 as producers inside and outside OPEC turned on the taps to address rising world demand and concerns about heating oil shortages, is now too high in a slowing world economy.
nationalpost.com
ccattaneo@nationalpost.com |
