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Canadian gas price seen doubling on U.S. demand

CALGARY — Canadian natural gas prices, which have fallen 25 percent in the past 10 weeks, could double by this winter due to demand by gas-fired electrical utilities in the United States, analysts said.

Expressed in U.S. currency, Canadian day-to-day prices in Alberta have declined to $3 per unit from $4 on May 30, while U.S. prices have remained steady during that period at about $4.35.

The price difference between Canadian and U.S. gas has widened to $1.35 a unit from its traditional level of 35 cents.

"The price decline is a temporary phenomenon,'' said industry analyst Peter Linder of Research Capital Corp. "The utilities in Eastern Canada aren't taking much gas at the moment to put into storage and we've had no heat wave in Chicago and New York, which are big buyers of Alberta gas.''

Gas in storage in Eastern Canada was down to 147 billion cubic feet last week compared with 179 billion cubic feet in the year-earlier period, according to the Canadian Gas Association.

In the U.S., total storage inventories of 1.985 trillion cubic feet were 366 billion cubic feet, or 16 percent, below year-earlier levels and more than 200 billion cubic feet below the five-year average.

"By the fall, that price difference should narrow as demand increases when the utilities increase their injections into storage,'' said Linder. "And if we get a cold winter, Canadian prices could double from what they are now.''

A report by FirstEnergy Capital Corp. Monday noted that the lack of significant hot weather in the U.S. this summer has depressed electricity demand -- and prices for Canadian natural gas.

The report's author, analyst Martin Molyneaux, said the outlook for Canadian gas within the U.S. electricity generation mix remains upbeat because of capacity constraints at nuclear and coal-fired power stations.

"Given our arguments that coal and nuclear generation are very close to their available limits, we believe the immediate choice of generation will be natural gas-fired power plants,'' wrote Molyneaux.

($1-$1.48 Canadian)

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