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Providing coverage of Alaska and northern Canada's oil and gas industry
August 2007

Vol. 12, No. 33 Week of August 19, 2007

Canadian gas gets upbeat forecast

Gary Park

For Petroleum News

The badly rattled Canadian natural gas industry heard some soothing noises Aug. 9 from the Conference Board of Canada, which believes Alberta plant gate prices will rise by an average 6.2 percent a year over the next four years, starting with a mere 1 percent gain in 2008.

But the news is not so good for U.S. customers, who face an annual decline of 1.6 percent in exports from Canada over 2007-11, the independent research organization said.

With Canadian users expected to demand more gas in the future, “energy companies will have no choice but to export less,” despite a rebound in the U.S. economy, the outlook report said.

Canadian production edged up by only 0.6 percent in 2006, but is expected to commence a decline in 2007 that is likely to continue for a number of years, the board said.

The major source of that decline will be Alberta, whose share of national production will fall to 72 percent in 2011 from 76 percent this year, while British Columbia will account for 20 percent of output by 2011. Production in the Northwest Territories and Yukon will stay flat until 2011, but could be a significant contribution if the Mackenzie Delta and Beaufort Sea come on stream.

Gas prices expected to climb

The report said gas sector profits should recover to C$10.8 billion this year from C$9.8 billion in 2006, when they were hit by rising field costs and softer prices, and keep climbing to C$15.9 billion in 2011.

That will reflect the steady climb in gas prices from C$6.59 per gigajoule this year to C$8.40 in 2011.

Contributing to that trend will be declining output in Western Canada, which will trim employment levels, lowering labor costs for the first time in eight years.

Louis Theriault, the board’s director of Canadian industrial outlook, said the surge in gas prices is supported by the fact that the commodity operates in a North American market, where supply is limited, demand remains strong and oil prices show no signs of heading for the US$30 per barrel zone — a combination that points to a robust market for gas.

Some analysts were surprised by the outlook, suggesting the fact that gas in storage is 16 percent greater than a year ago points to a price slump in September, stalling a price turnaround until late 2008 and delaying a strong recovery until 2009, when the drilling downturn will make an impact.

However, Theriault argued that gas prices are slowly recovering because of fundamental stress on supply and demand, which will contribute to sustain upward pressure.

He also said that continuing high oil prices should force gas prices higher over the medium term by driving industrial users and utilities to switch to gas.






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