Oilpatch yields record results
Prices fuel $10B surplus, $70B revenues
Calgary Herald
The twin pillars of Canadian energy -- crude oil and natural gas -- surged to two-year highs Friday, setting the table for rising fuel costs, record revenues for petroleum producers and unprecedented government royalty payments.
Crude oil for March delivery jumped almost a dollar Friday on the New York Mercantile Exchange, closing at $35.12 US a barrel, its highest point since November 2000.
Tough talk from U.S. President George W. Bush about a war with Iraq, which contains the world's second-largest oil reserves, ignited the rise.
Meanwhile, cold winter conditions in parts of North America, along with dwindling inventories, pushed gas prices up 21.5 cents to $6.043 US per million British thermal units, their top level since February 2001.
Energy markets shifted into buying mode Friday as both commodities broke through "psychological barriers," said Phil Flynn, senior energy trader at Alaron Trading Corp. in Chicago.
"It was incredible, an explosive day," Flynn said. "We really saw some panic buying today, people were nervous and a lot of people were trying to secure supplies."
The immediate outlook, he added, is for prices to continue climbing as the prospect of a war in the oil-rich Middle East grows.
"In crude oil, we're going to head up towards $44 once the bombs start dropping," Flynn added.
Industry experts say several factors are converging at once to fuel the rally.
Inventories of natural gas, used to heat homes and fuel industrial furnaces across the continent, dipped 12 per cent last week, as winter weather gripped much of the United States.
U.S. stockpiles of gasoline and heating oil are also falling, causing prices to rise.
Compounding problems, natural gas production is dropping in most of the continent and oil exports for Venezuela -- the world's fifth-largest crude exporter -- have been slashed in half by a lingering strike in the South American country.
For Canadians, soaring energy prices have wide implications.
Home heating bills have been moving upward this winter and motorists are already feeling the pinch at the pumps.
"I truly believe we're in an environment of higher prices and the energy complex overall has to get used to that idea," said energy economist Carol Crowfoot, president of GLJ Energy Publications in Calgary.
The average price of a litre of regular gasoline in Canada rose 3.8 cents this week to 78.8 cents, its highest point in more than a year. Typically, every dollar jump in crude oil leads to a one penny-a-litre hike at the pumps.
"Unless crude prices come down fairly soon, we're likely to see a bit of an increase," said Michael Ervin of MJ Ervin & Associates, which tracks markets. "However, I just don't see much more of an upside in crude prices."
A study for the Canadian Association of Petroleum Producers forecasts record industry revenues of $70.8 billion this year -- shattering a two-year-old record of $63.6 billion -- if oil averages $25.25 US a barrel this year and gas averages $5.25 Cdn. per mmBtu.
That projection seems increasingly likely. The U.S. Department of Energy bumped up its 2003 oil forecast on Friday to $32.36 US a barrel, while most industry analysts expect gas markets to remain strong.
If current futures prices hold, it would generate industry revenues approaching $82 billion, said analyst Jason Konzuk of Calgary investment firm FirstEnergy Capital.
With spare money, the industry is already expected to drill a record 18,300 wells this year, creating thousands of jobs in the oilpatch, he said.
"It means more jobs and right now, contractors are screaming for crews," Konzuk said.
Despite the euphoria, oil companies aren't opening up their wallets yet.
"As a tandem of prices, I'm not sure we've ever seen prices this high. But I do not expect them to last," said veteran oilman Stephen Savidant, chief executive of Canadian 88 Energy Corp., a mid-sized oil company.
"Just about every producer would view today's prices as quite an extraordinary spike."
Regardless, the price spikes should lead to a bonanza for the Alberta government.
Each $1 US increase in the average price of oil for the year adds about $108 million to Alberta government coffers, while an additional dime on gas adds $137 million to the province.
CAPP forecasts royalty payments and taxes paid to federal and provincial governments this year could top $18 billion, compared with $14.4 billion in 2002.
"Things are certainly going to get tougher for consumers of energy, overall," said analyst Martin Molyneaux of FirstEnergy Capital. |
