• Supply (production and imports)
• Demand (consumption)
• Other factors
• Gaz pricing mechanism
• Gaz purchase mechanism
• Definitions

In the National Energy Board’s 2004 report “Looking Ahead to 2010”, they reiterate a widespread concern that natural gas prices will likely be high and volatile for the foreseeable future until further adjustments can be made to bring on new supply or reduce consumption.  The report states “Participants agreed that there has been a step-change in the level of natural gas prices and that the market price reflects a tight balance in North American natural gas supply and demand.

Given this tightness, natural gas prices often respond dramatically to anomalous temperatures.  Hurricanes Katrina and Wilma in 2005 clearly demonstrated this fragile supply/demand balance when prices rose to above ¢45/m³.

In an environment where production has difficulty meeting demand under normal circumstances, we can only imagine the impact on prices during winter when temperatures are below normal.  Hot summer temperatures also contribute to increased natural gas demand for  electricity to run air conditioners.  An increasing number of natural gas fired power plants are being built in the US, Ontario and Alberta.  Add to this the soaring demand for natural gas used in the extraction in the Alberta oil sands.

Higher efficiency, low-emission natural gas fired power plants are increasingly replacing traditional coal and nuclear plants.  The EIA reports that demand for natural gas in the power sector increased 4.9% per year between 1990 and 2001 in North America and will increase 24%, from 5.8 to 7.2 Tcf, between now and 2020.  It is estimated that an amount of gas equivalent to the current province of Quebec’s consumption will be used to exploit the Alberta oil sands by 2010.  By 2015, it will be 1.5 times Quebec’s current usage.  There are many other natural-gas intensive projects already under construction or being planned all across North America.

When considering that production can barely be maintained at current levels and that solutions being considered will only be coming on stream early next decade, one can only conclude that the supply/demand balance will remain tight for quite some time.  The result should be higher energy costs, whether for natural gas or power.

Click here to return to the short version of this article.