Gas will stay up: analyst

By ANGELA BARNES
Globe and Mail
Tuesday, October 25, 2005

TORONTO - Relatively high natural gas prices are here to stay for the next few years, according to Bank of Nova Scotia's commodities expert. That isn't good news for Canadian homeowners facing a long cold winter of high heating costs, but it is for Canadian gas producers.

"Today's tight North American supply/demand balance for natural gas is unlikely to ease significantly until 2008, when six new U.S. LNG [liquefied natural gas] import terminals come on stream," said Patricia Mohr, vice-president of Scotia Economics, in the latest report on the bank's commodity price index.

Natural gas prices on the New York Mercantile Exchange have doubled in the last year, rising from $7.37 (U.S.) a million British thermal units in October, 2004 to a record high of $14.22 three weeks ago. They have since eased off to around $13, helped in part by indications that demand has eased somewhat, particularly in the industrial sector, in the face of the exceptionally high prices.

Ms. Mohr sees NYMEX natural gas prices averaging around $9 per mmbtu next year and West Texas intermediate crude oil prices averaging about $60 a barrel - levels "guaranteeing exceptionally strong financial results for Canadian oil and gas producers," she said. Crude prices touched a record intraday high of $70.85 on Aug. 30, just as hurricane Katrina was bearing down on New Orleans.

It currently stands at about $61.35 High energy prices were a key factor fuelling the rise in the Scotiabank commodity price index to a record high in September, its second in as many months. The index increased 9 per cent from August to a level that is double the October, 2001 cyclical low.

Climbing metal and mineral prices also were a major contributor to the advance in the index, which measures price trends in 32 of Canada's major exports. "Widespread gains in most base metals, precious metals, uranium and potash offset slightly lower prices for nickel, aluminum and cobalt," Ms. Mohr said. The metals and minerals index rose to a record last month to stand 2 per cent above the peak set in June, 1988.