Inuvik (Mar 07/03) - A harsh winter and a dwindling and uncertain supply has sent the price of natural gas to an all-time high.

Last Tuesday, spot gas prices at Henry Hub -- the wholesale benchmark price point in Louisiana -- shot up above $18 per million British thermal units this week.

That represents an all-time high for spot gas and more than five times the $3.30 average seen in 2002.

In the winter of 2001-02 the price of oil and natural gas also spiked to record highs.

What followed was the biggest exploration boom the Mackenzie Delta has ever seen.

Roland George, a senior partner at Purvin and Gertz, a Calgary-based oil and gas consulting firm, said last winter's boom was based more on long-term vision than short-term reaction to spikes in the market.

"It wasn't so much the price spike that generated the activity, as it was the longer term view from the various market players, that there was something economic up there," George said, adding that the high price for gas only further reinforced decisions to drill in the Delta.

"I think we're looking at something comparable this year," he said.

While the short term and cyclical phenomenon of high gas prices is something that producers like to see, it is not what they gauge their long-term plans on.

"The short-term factors are explaining the intensity of the variation, such as low inventories and cold weather, but also maybe a more structural concern is that the current gas supply isn't quite adequate to meet current needs," George said.

Meeting the needs

Producers are calling in reserves to fill an increased demand, as well as seeking out new sources for supply.

Capped wells are being uncapped; sources are being tapped along the east coast and Rocky Mountains.

George said a Mackenzie Valley pipeline would fill an increasing gap in the supply side of natural gas, but there are still many obstacles to overcome.

"There are no slam-dunks on these long lead time projects, but a lot of pieces have been falling into place," George said.

The quantifiable risks such as the economies and technological aspects indicate that the mega-project is feasible, but there is more to consider than numbers in this project.

He says producers are still hedging on the pipeline; having seen the project crumble 30 years ago, no one's saying it's a sure thing this time around.

"When we see strong First Nation and community support that seems to reduce risk to a project, but when we see groups that are not quite on board, we say, 'Okay, I guess it's not a done deal,' " he said.

But with recent financing news and regulatory papers now being prepared, he says the evidence and favourable factors indicate that the pipeline will go this time.

"We're leaning towards this project coming in for the winter of 2009-2010," George said.