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Cablegate: Hurricanes and Natural Gas Disruptions: The View

This record is a partial extract of the original cable. The full text of the original cable is not available.

041700Z Oct 05

UNCLAS OTTAWA 002966

SIPDIS

SENSITIVE

DEPT FOR WHA/CAN AND EB/ESC/IEC
DOE FOR INTERNATIONAL AFFAIRS: PUMPHREY, DEUTSCH

E.O. 12958: N/A
TAGS: ENRG EPET PGOV CA
SUBJECT: HURRICANES AND NATURAL GAS DISRUPTIONS: THE VIEW
FROM CANADA

REF: OTTAWA 2688

1. (U) Sensitive but unclassified.

2. (SBU) Summary: With Canada's natural gas production at
nearly full capacity, there is little that government or
industry can do in the short-term to add to North America's
natural gas supply. Interlocutors say that in the wake of
Hurricanes Katrina and Rita, at least the debate within the
GOC is headed in the right direction, focusing on capacity
and demand rather than pricing. In the long term, the record
high prices could serve to spur new drilling and new
investment. End summary.

3. (SBU) According to representatives of the Canadian Gas
Association (CGA), the recent hurricanes have dramatically
illustrated how little excess capacity exists in the North
American natural gas system. For several years Canada's
natural gas production has been essentially flat at about 6.4
trillion cubic feet (TCF) per year, with about 3.6 TCF
exported to the United States. Although natural gas from
Canada represents about 17 percent of total U.S. consumption,
Canada's proven reserves have declined by more than 13
percent since 1996, and currently stand at 56.1 TCF.

4. (SBU) The CGA representatives believe that, at least in
private and in committee, members of Parliament have
generally displayed a good understanding of the tight natural
gas market in North America. MPs, they say, have correctly
keyed in on capacity and demand, recognizing that, much like
petroleum (see reftel), there is no easy way to boost
production in the short-term.

5. (U) Approximately 47 percent of Canadian households use
natural gas for heating, and most areas of the country are
expected to experience record consumer prices this winter.
For many consumers, high prices may be somewhat mitigated by
the practice of many gas providers to purchase gas in the
summer, when prices are lower. Ironically, hedging prices
in this manner is specifically forbidden in Alberta, where
most Canadian gas is produced, so Albertans may pay some of
the highest prices in Canada this winter for natural gas (the
province has a rebate program for lower income residents if
prices go above a certain level).

6. (U) Even before the hurricanes, high prices were driving
increased drilling activity throughout western Canada, but
especially in northeast British Columbia. New drilling for
natural gas has increased 69 percent over last year in
British Columbia, and labor shortages have become one of the
industry's biggest challenges. The combined effects of
higher prices and the hurricanes may also give new momentum
to the Mackenzie Valley gas pipeline project, which would
transport at least 6 TCF of proven gas reserves from the
Mackenzie River delta to existing gas infrastructure in
Alberta.

7. (SBU) Comment: With its natural gas production system
operating at near full capacity, there is little that Canada
can do in the short-term to add significantly to North
America's gas supply. In the longer term, high prices may
serve to spur new investment, increased drilling, and build
momentum for projects such as the Mackenzie Valley pipeline
and various proposals for liquefied natural gas (LNG). For
Canadian consumers, however, the long-term projects will do
little to alleviate the pain they will experience this winter
over record natural gas prices. With the country heading
into election mode, it may prove difficult for industry to
keep the debate focused on supply and capacity, rather than
pricing.

Visit Canada's Classified Web Site at
http://www.state.sgov.gov/p/wha/ottawa

WILKINS

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