SPECIAL REPORT

NEW PRESSURES ON PROFITS

JULIE CAZZIN August 10 1992
SPECIAL REPORT

NEW PRESSURES ON PROFITS

JULIE CAZZIN August 10 1992

NEW PRESSURES ON PROFITS

Like hundreds of other small Alberta la natural-gas producers, Robert Lamond cheered the Conservative government’s deregulation of the natural-gas industry in 1985. During the early 1980s, the chairman of Calgary-based Czar Resources Ltd. and his counterparts had seethed as they watched gas prices climb steadily on international markets, while Pierre Trudeau’s Liberal government kept prices artificially low in Canada and severely limited exports. But after the removal of resfrietions in 1985, the producers’ euphoria over deregulation quickly subsided as a huge surplus of gas helped push prices in Canada down steadily from a high of $2.70 (U.S.) per thousand cubic feet in 1986 to a 15-year low of less than $1.20 by September, 1991. Declared Lamond: “Deregulation really hurt us for the first few years.”

But in the last few months, a turnaround in gas prices south of the border, along with what 48-year-old Lamond calls a “bungeecord rebound” in sales of Canadian natural gas to the United States, have pumped new

profits into the industry. Since January,

prices have climbed to $1.90 per thousand

cubic feet. And Lamond confidently pre-

diets that Czar Resources will earn record

profits this year.

Despite the producers’ newfound optimism about the North American market-

place following deregulation, the new rules

still pose risks for them. Over the past year,

several American utility companies, includ-

ing California’s huge Pacific Gas & Electric

Co., have tried to open and renegotiate

multi-year contracts to buy gas that were

signed when prices were higher. They

claim that those contracts violate the spirit

of deregulation. In Canada, there is still an

enormous surplus of gas that the producers

extracted and sold when prices were low in

an attempt to maintain their revenues. And

ultimately, it is prices, not the producers’

philosophical commitment to the free market, that will determine their views on

regulatory policy,

JULIE CAZZIN