Canada reminds US: don't forget we did you a favor on natural gas
Despite recent cuts in Canada's natural-gas price, Canadian energy experts fear an icy blast from the south. Reading the market and political winds from Washington, Canada announced April 11 an 11 percent price cut to the United States. Struggling to get the country out of recession and eager to show that it is responsive to market forces, the Trudeau government neither wants nor can afford another contentious issue with the US, Canada's major trading partner. But there is a possibility that the gas-price issue will become one.
On the heels of the price-cut announcement, some American importers are saying the cut should be deeper to match lower-priced supplies in the US. Canadian Energy Minister Jean Chretien is exasperated by the short memory of the US, implying it may be trying to get the best of an old trading friend.
He recalls that a number of years ago the US needed Canada's natural gas ''very badly,'' and Ottawa came through despite angry protests from many Canadians who wanted to store the reserves. Mr. Chretien adds now that the tables are turned, ''it will not be too nice'' for the US to take advantage of the soft natural-gas market to break contracts. He warns Washington, ''When we are again in a seller's market, we might sock it to you.''
Canada supplies only 4 percent of US requirements, but the natural gas goes to some key areas that carry plenty of clout on Capitol Hill. Early this year, Ottawa felt intense political heat from some Midwestern congressmen who demanded that Canada revise a 1980 pricing agreement to bring Canadian prices in line with declining market rates. Otherwise, they said, Congress may enforce reduced prices by law.
While Ottawa will be keeping one eye on the US political reaction to its price cut, the other will be carefully assessing if the move achieves what the Liberal federal government wants most - to retain Canada's tiny portion of the US market and eventually expand its shaky toehold.
Along these lines, it is expected Ottawa will announce new measures in about a month that will make Canadian natural gas more attractive to US buyers. Volume-discounting is one possibility. But even with the reduced price and the development of new marketing measures, Mr. Chretien is predicting another bad year for the Canadian natural-gas industry.
Canada stands to lose about $500 million by dropping its export price - a hard blow for a country with a budget deficit of about $28 billion. And energy analysts doubt that any increase in sales to the US will offset the drop in price.