US imports of Canadian gas falling & OPEC dilemma
Oil & Gas Journal, the week November 04-10
Imports of Canadian natural gas into US markets are expected to fall 3% this year from 2001 levels and drop another 4% in 2003, said Robert Morris with Salomon Smith Barney Inc., New York.
That's primarily because production from the significant Ladyfern gas field in northeastern British Columbia is declining quicker than previously expected, he said. "In fact, Ladyfern production is currently estimated to be just under 500 MMcfd, vs. 650 MMcfd in early June, and volumes are currently expected to exit the year at roughly 450 MMcfd," Morris reported. "EnCana (Corp., Calgary) and Canadian Natural (Resources Ltd.), whose wells are the furthest downdip on the structure, have already experienced a nearly 40% decline in Ladyfern production from its peak.
"Thus, we now believe that Ladyfern production could exit next year as low as 100-150 MMcfd, with volumes expected to be down more than SO%, on average, in 2003 relative to this year."
Meanwhile, Morris said, drilling activity in the Western Canada Sedimentary Basin continues to lag, with the Canadian natural gas rig count 30% below 2001 levels on average.
As a result, said Morris, western Canadian production, excluding Ladyfern, is down roughly 3% year-to-date compared with 2001. "We now expect (US) Canadian imports to decline roughly 3% in 2002, compared with last year, and an additional 4% in 2003," he said (see graph).
Moreover, Morris said, recent reports by 15 of the 40 largest publicly traded producers indicate a third quarter sequential drop of 1.7% in US natural gas production, down 5.3% from year-ago levels.
"Given our longer-term outlook that North American natural gas supply (and) demand fundamentals will remain tight," said Morris, "interest has been revived in alternative sources to augment natural gas supply, such as liquefied natural gas, and 'stranded' natural gas reserves in the Arctic and offshore Nova Scotia."
OPEC dilemma
Members of the Organization of Petroleum Exporting Countries are in a "Catch-22" dichotomy between oil market fundamentals and conflicting expectations among futures market traders who may bid market prices up or down for the wrong reasons, said Paul Horsnell, head of energy research for JP Morgan Chase & Co., London.
Either OPEC members "produce what is warranted for market balances," and thereby risk market perceptions of overrunning their quotas, so "that prices could fall below (the group's) target band." Or else they "change production strategy to maintain credibility, and the market will remain overly tight for months," Horsnell said last week.
Speculators in oil futures markets recently have been closing out long positions on the assumption that the current tightness in world oil markets is temporary and soon will be offset by what they perceive as "cheating" among those OPEC members who are exceeding their production quotas.
"However, even using early October estimates that show further gains in (still low levels of) Iraqi production," Horsnell said, "OPEC is not yet producing enough to even hold inventories constant in (the fourth quarter), let alone make up the deficit, even before you add in the time lags between production and arrival of oil at refineries."
He said, "If the market is waiting for the (OPEC) cavalry to bring things back to normal, it had better dig in for a long wait."
Horsnell noted, "US heating oil inventories are now lower than they were at the start of August." And gasoline stocks are "only a little better," he said. "Crude inventories have remained stubbornly low after storms that should have increased them by so dramatically reducing refinery runs. Hence, we suspect that the 5-month old downwards trend must still be very much intact." |
