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High gas prices all summer: NEB

LAUREN KRUGEL

Wednesday, May 28, 2008

CALGARY — The National Energy Board has some discouraging news for Canadians clinging to hope that gasoline prices might cool off this summer.

Gasoline prices will closely track the global price of its raw product, crude oil, which is expected to average $130 (U.S.) a barrel over the next few months — about double what it was at this time last year, said Christian Rankin, an oil market analyst with the federal agency.

A barrel of crude was worth just shy of $131 a barrel on the New York Mercantile Exchange Wednesday.

“Whatever your outlook on the oil markets, I think we can all agree we are all in very, very new territory here,” Mr. Rankin said.

Analysts predict gasoline prices could average between $1.30 (Canadian) and $1.40 a litre this summer.

This week's pump price survey by Calgary consulting firm MJ Ervin said prices across the country are on average close to $1.33.

The situation could get nastier if there are unforeseen refinery problems, which would draw down inventories and push prices up further, Mr. Rankin said.

“Inventories currently look to be at healthy levels, but the refining sector in Canada is quite tight. If we have any regional upsets, that can cause short-term price spikes while inventories and supplies are found,” he said.

But prices could moderate if demand in the United States and Canada subsides, pushing inventories to more steady levels.

Prices of natural gas, which is used for electricity generation and heating, are also going up, the board said.

A million British thermal units of natural gas is expected to be between $11 (U.S.) and $13 over the summer, after bottoming out to less than $6 during the fall.

On the New York Mercantile Exchange Wednesday, prices were close to $12.

“Winter lasted longer and was closer to normal in terms of temperature than previous mild winters. That resulted in a greater drawdown of storage than in previous years,” said Paul Mortensen, the energy board's technical leader of hydrocarbon resources.

The prices are also being pulled up by crude oil prices and by declines in Canadian production.

Another factor is liquefied natural gas, or LNG, which is made by condensing the gas into a liquid state under ultra-cold temperatures.

LNG makes it possible to ship the commodity around the world via tanker. With demand high in places like Europe and Asia, less LNG has been heading into the North American marketplace.

Last year North America imported 2.6 billion cubic feet of LNG, whereas this summer it's expected to get 1.9 billion, Mr. Mortensen said.

“We do caution that unpredictable events such as extremely hot weather or hurricane activity has the potential to cause prices to move sharply upward for short periods of time,” he said.

There should be more than enough electricity in Canada to meet summer demand, said NEB market analyst Stephane Thivierge.

“However there is always the potential for uncontrolled circumstances to occur that could potentially threaten the supply of generation including extreme weather events and unplanned generation or transmission outages,” he said.

But if natural gas prices peak substantially, it could drive electricity prices up — especially in Alberta and Ontario, which rely on natural-gas fired plants for power.

“These upward pressures will have different effects on different types of consumers,” Mr. Thivierge said.

Residential consumers will see less volatility, because rates are regulated, but industrial consumers could take a hit.

“Since industrial prices are subject to market forces, higher prices could exacerbate the impact of an economic slowdown in some industrial sectors,” he said.

© Canadian Press