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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: energyplay who wrote (81208)	12/9/2000 10:48:54 PM
From: excardog	Read Replies (3) \| Respond to of 95453

Natural gas prices expected to stay bloated for a decade 'Get used to it' TORONTO (CP) -- Canadian consumers chilled by the prospect of a doubling in the cost of heating their homes with natural gas won't see a return to last year's levels for nearly a decade, analysts say. Buoyant demand has pushed the natural gas price close to $9 US per million British thermal units on the New York Mercantile Exchange and it could hit double digits by the end of 2000, continuing a steady rise that has seen the price triple since January. "This is not a temporary aberration," Peter Linder, an energy analyst with Calgary-based Research Capital Corp., said Thursday. "There's been a fundamental change in the market dynamics of natural gas in North America. The days of a $2 to $3 gas price are not going to come back this decade. We're in a new environment of sustainable $5 to $8 gas prices." He added that by spring, "storage levels will be effectively empty in North America and the inability to fill that storage is going to support very high prices through 2001." Linder said the price could hit $11 US before Dec. 31. This week's price spike, provoked by reports of a frigid air mass sweeping across the continent, will leave utilities paying triple the price they paid for gas last year, and could more than double bills for homeowners. "The question is how quickly these companies pass on the cost," Linder said. "The consumer is not going to pay triple, but they're going to pay at least double this winter. If January and February remain cold, they'll pay more than double. "We're not going back to the days of two years ago, or even last winter. So get used to it." Linder said the Alliance pipeline, which on Dec. 1 started pumping 1.325 million cubic feet of gas per day from Alberta and British Columbia to the U.S., has permanently changed domestic prices. "Up until a couple of years ago, the big problem for Canadian gas producers was they didn't have enough export pipeline capacity into the United States," Linder said. "That kept the domestic price much lower than the export price. Now we have significant export pipeline capacity with the Alliance coming on last week. That problem has, effectively, permanently gone away. "Now we have one North American market and this basin is very tight. We're facing high decline rates." Beyond incremental drilling increases to help match supplies with soaring demand, it will take years for Canada's energy producers to tap into enough new natural gas to impact prices. Although the industry is headed for record cash flows in 2001, companies remain conservative on their project plans. "There's a limit as to how much capital you can spend in a given year," said an industry source. "Canadian producers have been going deeper and deeper on their exploration, and that will pay off, but it will take some time. "It takes years and years to bring on each of these projects." A joint project announced Wednesday by three Alaskan producers would see a pipeline deliver gas to Canada and the U.S. But even if the pipeline route shoots through the fuel-rich Mackenzie River Delta, it will be several years before the project impacts on continental supplies. "We've got basically a finite supply until we get significant new supply from the Mackenzie Delta," Linder said. "That's not until the end of this decade." Even the biggest energy producers won't be able to put new gas-extracting projects on stream until the market begin to settle, said Nancy Laird, vice-president of marketing for PanCanadian Petroleum Ltd. "Our capital cycles are rather lengthy," Laird said. "First of all, you have to have the land, identify the prospects, build up the opportunity, rank it relative to other opportunities and then go forward with capital funding." Calgary-based Anderson Exploration Ltd. evaluates where natural gas prices are headed well ahead of budgeting capital spending, said chief financial officer David Scobie. "You don't know exactly where the price is going to be in the next year, and we use that in setting our budgets," Scobie said. "A lot of what will happen with gas in the next six to 12 months will be driven by weather."