Higher natural gas prices boost B.C. treasury's fortunes
What's really driving the market is a shortage of gas in North America, industry official says
Scott Simpson
Vancouver Sun
August 05, 2005
British Columbia's treasury could be in for a $600-million windfall this year as hot weather in the United States drives natural gas prices far higher than originally forecast by the B.C. Finance Ministry.
Based on a Vancouver Sun analysis of the difference between current North American contract prices for natural gas, and the ministry's own, conservative projections, B.C. has reaped about $200 million more in gas royalties than expected through the first four months of the current fiscal year.
Last March, the province projected the average price of gas for the 2005-2006 fiscal year at $5.71 per gigajoule -- a B.C. homeowner burns an average of nine gigajoules of gas per month.
September contracts for natural gas on the New York Merchantile Exchange (Nymex), the trend-setting North American market, were selling on Wednesday for the equivalent of $10.80 Cdn per gigajoule.
Over the first four months of the current B.C. fiscal year, gas on the New York exchange has averaged $8.83 Cdn -- and Thursday's close represented a nine-month high.
Futures prices on Nymex show gas contracts well above that level for the remainder of the province's fiscal year.
The B.C. finance ministry is reluctant to comment on the impact of higher gas prices -- revenue figures will be released as part of a quarterly budget review in September.
Analysts with Calgary's First Energy Capital Corp. recently revised upwards their 2005 natural gas price forecast to $9.50 Cdn -- and projects a further increase by year's end.
"With loads of new gas-fired power generation capacity in place in the United States, demand for natural gas is likely to grow," a report issued in late July predicted.
First Energy also notes that at mid-2005, the per-hectare prices that exploration companies are paying for gas and oil leases in B.C. are higher than at any time since the California energy crisis of 2000.
"That reflects what industry perceives the value of the resource under that land to be worth," said David Molinski, assistant deputy minister in the oil and gas division of the B.C. Energy Ministry.
"They recognize that B.C. is a good place to do business, so they are pricing their bids for the land accordingly.
"This also indicates that there is a lot more competition now in B.C.'s oil patch to acquire land.
"But I also think B.C. has become a really competitive jurisdiction in the North American picture now and industry is choosing to go to B.C."
Drilling activity has gone up 24.3 per cent in B.C. in the last two years, according to the ministry.
"We're acquiring a lot more of the investment that's been happening in Canada, more of that is flowing to B.C."
Molinski said the wide array of factors that influence the flow of royalties, making it tough to predict where prices will go next.
The province lists Canadian Natural Resources Limited of Calgary as the busiest company in B.C. -- it has been active here since 1991.
"What's really driving the market is that there is a shortage of gas in North America and as a result gas prices are higher," said Steve Laut, president and chief operating officer of Canadian Natural Resources Limited.
"If you want to find gas in Canada you need to go north and you need to go west, and northeast B.C. fits right in there. It's one of the areas in Canada that's not as explored as southern or eastern Alberta.
"The B.C. government can take some of the credit for getting more activity there and obviously that generates more revenue for the government. Price does help the growth because you've got more cash flow to reinvest."
© The Vancouver Sun 2005
Posted by Arthur Caldicott on 06 Aug 2005