Canadian gas exports remain limited, analysts say

By the OGJ Online Staff

HOUSTON, Aug. 20, 2001 — Canadian natural gas exports to the US are projected to rise about 1.1 bcfd in the second half of this year, compared to the same time a year ago, said analysts with Raymond James & Associates Inc.

They said the latest figures should help dispel any notion that a big increase in Canadian gas is contributing to the rapid build up in US storage volumes, or that a rise in Canadian exports could significantly effect US supply/demand fundamentals.

Gas analyst Wayne Andrews said record drilling in Canada has generated about 2 bcfd of new production this year. A significant amount of the increase is the result of Canadian Natural Resources Ltd.’s Ladyfern discovery in British Columbia.

Raymond James estimated Ladyfern will add an estimated 250-300 MMcfd of incremental exports through the balance of this year, but not enough to warrant concern. Andrews called Canadian consumption the biggest wildcard to the outlook.

During the 2001 second quarter, Canadian storage was filled at a rate of 2.3 bcfd, up from 1.3 bcfd in thecomparable 2000 period. Raymond James analysts said it’s likely high prices helped contribute to a decline in Canadian consumption, mirroring price elasticity that has affected US consumption.

Pipeline export capacity isn’t expected to be a problem with an estimated 2 bcfd of unused capacity in the system right now. Compression and unutilized space on the TransCanada and Alliance pipelines could provide another 1.7 bcfd of export capability, Raymond James estimated. Another 300 bcfd could come with an expansion of the PGT line.

“We think it is highly unlikely that Canadian production can continue to grow at a rapid enough pace to fill an additional 2 bcfd of export capacity,” analysts said.

Raymond James previously estimated US gas production will rise about 3% or 1.5 bcfd this year, compared to last. If the industry can’t boost North American production the yearly supply more than 2 bcfd, analysts said it appears some demand will have to be removed from the market. The outlook bolsters its belief gas prices will stabilize above $3.50/Mcf to balance the market, Raymond James said.

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