www.canada.com JAY BRYAN The Gazette Saturday, February 22, 2003

With the price of gasoline and heating oil already at uncomfortable levels, the prospect of an Iraqi war naturally raises the question: how bad can it get?

Pretty bad, but only for a very short time, suggests economist Earl Sweet, who's just finished an analysis whose worst-case scenario sees the price of a barrel of oil spike as high as $60. That compares with a recent price around $36 a barrel and an average in recent years of something like $25.

Perhaps more important, though, Sweet believes that even in this worst case, prices would drop very quickly from their peak to levels at least a little lower than today's.

That's a relief, since a rule of thumb equating a $1 hike in the price of oil (which is priced in U.S. dollars) with approximately a one-cent rise in the cost of a litre of Canadian gasoline suggests that $60 oil could push Montreal gas prices above one dollar a litre.

The $60 scenario assumes that there really is a war and that Iraqi dictator Saddam Hussein responds, as he did in Kuwait a decade ago, by torching Kuwait's oilfields, making it hard for any successor regime to export oil without major reconstruction.

While this scenario is not a forgone conclusion, it is widely considered a plausible one.

The happier news is that Sweet, an assistant chief economist at the Bank of Montreal, thinks there are powerful forces that would begin to cut the price of oil very quickly should a war push it much above $40, much less to $60. How quickly? Perhaps in a matter of days.

That might seem a little surprising if you've been following the news of unusually low oil stockpiles brought by the general strike in Venezuela, a major exporter. But Sweet points out that oil exports from Venezuela are gradually rising, while a number of other factors suggest that any serious shortage will quickly call forth new supplies.

In the short run, the big strategic oil reserves held in the U.S, Europe and Asia are likely to be tapped if oil prices rise above $40, he notes.

More important, the OPEC producers outside of Iraq and Venezuela are already pumping more oil to offset the recent shortfall and still have the capacity to raise production further, potentially offsetting most of any Iraqi production loss. Important oil regions outside of OPEC are also raising production. Russia is the biggest producer, but Canada and Africa are also significant.

Finally, high prices do have an impact on consumption.

But we don't want to depend too much on this impact in the current crunch, because it hits the whole economy, not just energy purchases. While energy efficiency is a very good thing, it is most efficiently gained through long-term policies that specifically target energy.

A spike in the price of oil, on the other hand, won't change people's energy consumption much because they won't buy more-efficient cars or heating systems in response to a temporary condition. Instead, it acts as a tax discouraging all kinds of spending, from new cars to home renovations to business investment, which is a recipe for weaker economic growth.

jbryan@thegazette.canwest.com

www.nationalpost.com Tony Seskus Financial Post Friday, February 21, 2003

CALGARY - Soaring natural gas prices and shrinking conventional gas reserves threaten to stunt growth plans in Alberta's energy-rich oilsands, a leading economist said yesterday.

Carol Crowfoot, president of GLJ Energy Publications Inc., said record prices for natural gas -- used in the extraction and refining of the tar-like bitumen -- are boosting input costs while conventional gas production is flat or declining.

The challenges add to the costs already confronting oilsands projects and means producers need to find new gas to maintain oilsands growth as well as develop new technologies to cut their reliance on natural gas, she said.

It also comes at a time when Canada's reliance on the oilsands production continues to grow, with production of synthetic crude expected to soon eclipse conventional production in Alberta.

"If the price of natural gas was the only risk factor, then obviously it wouldn't have much of an impact," Ms. Crowfoot said at a Canadian Institute oilsands conference in Calgary.

"Unfortunately, it's a cumulative effect of all of the risk factors -- the regulatory regime, the costs of Kyoto, competing with Venezuela, upgraders -- we need to go through that whole chain."

She added: "We do need to find additional sources of supply."

Natural gas futures yesterday rose for the fourth straight session, gaining 0.5% to their highest levels in more than two years after supplies of the fuel last week fell more than analyst' forecasts. Gas for March delivery rose US2.8¢ to US$6.16 per million British thermal units on the New York Mercantile Exchange, the highest close since Feb. 9, 2001.

April gas closed 1.2% higher at US$5.98, a contract high, after reaching US$6.01.

A bitterly cold winter in the U.S. put the squeeze on tight natural gas supplies, which has kept prices at high levels for months.

That's bad news for most oilsands developers, who must fight to reduce costs in a business with notoriously tight margins.

Natural gas prices are a particularly important cost component because the fuel is used in many facets of oilsands operations, though to a lesser degree in oilsands mining. The most significant user of natural gas are SAGD operations (steam-assisted gravity drainage technology), which uses the gas to produce the steam needed to warm the reservoir before extracting the tar-like bitumen from the earth.

The oilsands have been identified as a key growth area for Canadian energy supplies. The region surrounding Fort McMurray contains 315 billion barrels of recoverable oilsands reserves, rivalling those found in Saudi Arabia.

But Ms. Crowfoot cautioned that when gas prices reach levels around US$6 or US$7 per thousand cubic feet, oilsands growth plans are put "at risk" because they add to the development cost.

She also noted that with such high prices there is also concern of an opportunity cost lost because a high-quality, high-value resource is being used to develop a lower-quality product.

She said producers need to develop new technologies and fuel alternatives to reduce their dependency on natural gas.

Ms. Crowfoot said it is important that new gas reserves are brought on stream in order to meet the needs of the oilsands. She said gas production in Canada has been flat for the last two to three years.

"I think the industry is starting to realize that in order to grow production, not just stay flat but grow to meet the incremental demands for the oilsands, we have to get another source of supply," she said. "We need to replace about 3.5 [billion cubic feet] a day just to offset the declines."

She said that while tight gas supplies and high prices threaten to have a short-term effect, that she is "completely optimistic" that the oilsands projects will be viable through technological advances.

tseskus@nationalpost.com

www.ctv.ca

CTV News: Consumers aren't buying the reasons for gasoline price hikes 1:45 protesting gas prices in L.A.

CTV.ca News Staff

Consumers are getting pumped up about rising gas prices, which some critics are calling "war profiteering." Oil companies explain that high costs for crude oil means price increases at the pump, but politicians will soon be asking them to justify the price hikes.

Analysts explain that fears of war in Iraq and more than 11 weeks of disruption to oil exports from strike-bound Venezuela have pushed oil prices up by about 45 per cent since November.

After jumping 7 cents in one day, a litre of self-serve regular unleaded is now selling for a record high 89.5 cents in Halifax. In California prices are topping out at $2 US a gallon.

The price hikes have left many frustrated consumers convinced that there is something more sinister behind the price changes. A group of protesters rallied in South Central Los Angeles Thursday, decrying what they call blatant price-gouging by the oil companies.

With a gas price increase of 20 cents US in the past two weeks in 15 cities across the U.S., critics say there's more to it than crude costs.

With no war presently underway, and with a possibility it might never happen at all, many were asking why gasoline prices seem to already incorporate a "war premium." Increasingly vocal critics accuse the oil companies of war profiteering.

At least one independent retailer says markets are over-reacting and prices shouldn't be this high, but the oil industry still points to the rising cost of crude.

Most oil company officials have declined public comment on the matter, but Calgary-based oil giant EnCana Corp. CEO Gwyn Morgan told a conference call that the pump price reflects the sway of international market forces and the high percentage of federal and provincial tax.

EnCana is one of several Canadian oil producers now ringing up big profits. EnCana announced Thursday its profit for the fourth quarter was $429 million, up 376 per cent from the same period a year ago. Earlier this month, Imperial Oil said it posted a 100 per cent improvement with a $454 million fourth quarter profit, and Petro-Canada reported a profit of $370 million, up 393 per cent.

Such healthy performance has done little to quiet the resentment among consumers. While higher energy costs threaten further damage to a U.S. economy, which is already in the doldrums, Finance Minister John Manley insists Canadians should not be worried.

"In the Canadian economy it's kind of neutralized, because we're producers" Manley said. "I think what we have is a short-term spiking in prices that may reverse itself once some of the international tensions have been worked out," Manley told reporters.

Top Canadian oil executives are reluctant to comment, but they won't be able to stay quiet for long. The CEOs of Petro Canada, Sunoco, Shell, Esso and others have been summoned to Ottawa by a commons industry committee looking for the factors driving record-high gas prices. Although the issue has been studied in the past, no investigation has found evidence of collusion or price-fixing.

www.canada.com GILLIAN LIVINGSTON Canadian Press Wednesday, February 19, 2003

TORONTO (CP) - With more international assets, Petro-Canada expects oil and gas production to rise 55 per cent over the next five years as the company consolidates previous acquisitions and looks at further expansion, a senior company executive said Wednesday.

Current projects under development, "will result in excess of 600,000 barrels of oil equivalent a day for Petro-Canada by the end of 2007," Petro-Canada vice-president Gary Bruce told an analyst conference. "That's a 55 per cent increase over the next five years."

Last May, Calgary-based Petro-Canada completed its $3.2 billion takeover of most of the international assets of German-based Veba Oil and Gas, giving the Canadian company new assets in the North Sea, Africa and elsewhere.

That integration is now done and Petro-Canada is producing "well in excess of 200,000 barrels of oil equivalent a day from our international assets," said Bruce, vice-president of corporate communications and business development.

"These businesses provide us with a strong foundation and many opportunities for future growth," said Bruce,

Petro-Canada also said it sees big opportunities to expand its international operations in the wake of the Veba deal, which brought on people with expertise in international oil and gas production who can help the company take on new projects.

"We also are looking at other areas," he said. "So we do look at new areas if they fit with our capabilities and if they meet our investment criteria - and they are of significant size."

Looking ahead, Bruce said growth will come from Veba's assets in Syria, Libya, Trinidad, Venezuela, and the North Sea. In Canada, production growth is expected from Petro-Canada's Hibernia and Terra Nova oil projects off Newfoundland as well as the northern Alberta oilsands.

"Our strongest growth will come from East Coast oil, oilsands and international," Bruce said.

Petro-Canada (TSX:PCA) is one of Canada's largest energy companies, producing oil and natural gas as well as refining and selling gasoline and other fuels through a national chain of service stations.

In 2002, Petro-Canada's overall production averaged 382,400 barrels of oil equivalent a day, up from 196,500 barrels a day in 2001.

The company attributed that to the Veba acquisition and the higher production in its East Coast oil operations.

In 2003, overall production is expected to average 475,000 barrels of oil equivalent a day with the addition of production from offshore Newfoundland. That's up 24 per cent from 2002, Bruce said.

One asset Bruce said Petro-Canada will keep watch on is the Syncrude oilsands joint venture in Fort McMurray, Alta., in which the company already owns a 12 per cent stake.

Earlier this month, EnCana Corp. (TSX:ECA) of Calgary sold its 10 per cent stake in Syncrude to Canadian Oil Sands Ltd. for $1.07 billion in cash, making it the biggest shareholder of one of Canada's premier heavy oil projects.

The deal was done by the royalty trust that owns Canadian Oil Sands and gives it a 31.74 per cent stake in the project.

"We were a bit surprised that EnCana decided to sell - but I'm sure they have their reasons," Bruce said.

"It also is a bit difficult these days on the market to compete with these income trust companies, as you know they get a bit of a tax advantage over companies like ourselves," he noted, adding, "that wasn't really the case for us."

However, if any other partners in Syncrude want to sell off their stake, "we'd certainly look at it and we plan on being in Syncrude . . . for a long, long time," Bruce said, adding that Petro-Canada sees that "as a very long-term highly profitable investment."

www.canada.com SYLVAIN LAROCQUE Canadian Press Tuesday, February 18, 2003

OTTAWA (CP) - A Commons committee is demanding to hear testimony from top oil executives, explaining the recent surge in oil prices.

The Commons Industry committee unanimously adopted a Bloc Quebecois motion on Monday that calls on the executives to appear before the committee in the next few weeks. Independent gas-station operators and oil-industry analysts will also be asked to make submissions on Parliament Hill. Bloc industry critic and committee member Paul Crete said the motion will "send a message" to oil companies as gasoline prices jump and heating costs rise during a bitter winter.

"This is not a time when we can spend too much on fuel," said Crete.

"Hopefully (the committee appearance) will give customers some hope."

Gas pump prices in Canada averaged about 80 cents a litre last week - topping nearly 90 cents in the Maritimes and causing Canadians to gripe about the cost to fill up their gas tanks.

The price hike has prompted MPs from all parties to accuse oil companies of collusion and price-gouging.

The government hinted that some relief might come in Tuesday's budget, but Industry Minister Allan Rock has also said the government may adopt a wait-and-see approach.

Industry committee members refused a Bloc request to make reference, in the motion, to "collusion between the oil companies."

"It would be dishonest to accuse them and then proceed to demand that they come and explain themselves," said Liberal MP and committee member Serge Marcil.

But Marcil expressed his own doubts as to whether the hike in gas prices could be solely attributed to the ebb and flow of the market.

"The companies will have to tell us why they decided, all of a sudden, to raise the price of a litre so high and so quickly."

Crete said he was confident the committee motion would lead to an in-depth examination of business practices in the oil industry.

The committee will present a report to Parliament following its hearings, and Crete said he hopes the committee will recommend that the Competition Bureau launch an investigation.

Gas prices have risen sharply in Canada in recent months. The price jumps are attributed to a number of factors, including the threat of war in Iraq and labour unrest in Venezuela that has restricted shipments. Venezuela is the world's fifth-largest producer.