Demand for
natural gas
is growing
Demand for
natural gas
is growing
by John McGilvray, Editor
Oil/Energy Statistics Bulletin
The
summer of '98 is now nearly over and in most parts of the United States
it will be remembered as a real scorcher. Temperatures in Texas topped 100
degrees every day for weeks on end. Even the normally moderate northeast
had some record breaking heat. Against this background, most people have
yet to give a thought to heating their homes this coming winter. For investors,
however, it is indeed time to begin thinking about the coming heating seasonand
about the increasingly important role to be played by Canadian natural gas.
In
recent years, Canadian gas has been overabundant relative to pipeline capacity.
There simply was not enough room in the lines to ship all the gas they were
producing to waiting markets in the United States. That led to downward
pressure on prices that made Canadian gas far less profitable than its U.S.
counterpart. Late this year, however, that will change, as about one billion
cubic feet per day of new pipeline capacity will be brought on stream. This
will virtually eliminate the excess supply that has plagued Canadian gas
markets.
Demand
for gas in the United States is growing at about twice the pace of domestic
production. Thus, Canadian gas will be needed to satisfy a sizable portion
of the increase in demand. The result, even in a normal winter, will be
upward pressure on Canadian gas prices. Should the coming winter prove to
be colder than normal, especially in the populous northeastern and midwestern
markets where a lot of the Canadian gas reaches the burner tip, gas prices
will be even stronger. Producer profits will follow suit.
For
the long run, even larger increases in pipeline capacity from Canada to
the U.S. are planned. Due to its environmental advantages and its increasing
use in the generation of electricity, among other factors, natural gas should
enjoy strong demand in the U.S. for many years to come. U.S. producers will
be unable to meet all of the increased demand, and Canadian gas will again
make up the difference.
Therefore,
investors who put aside thoughts of the sweltering summer we've just had
and cast an eye toward winter's impending arrival, should be thinking about
Canadian gas producers. Given the market bashing even the highest quality
gas producers' stocks have taken this summer, and the bright outlook for
gas markets, there seems to be some outsized profit potential in the group.
Editor's Note: Jack McGilvray is Editor of Oil/Energy Statistics Bulletin,
published by Oil Statistics Company, P.O. Box 189, Whitman, MA 02381. Telephone:
781-447-6407, Fax: 781-447-3977, e-mail: oilstats@compuserve.com. A special
trial subscription rate of 6 months (13 issues) for $50 is available to
Bull & Bear subscribers.
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