UPSTREAM COSTS BEGIN TO CATCH UP TO NORTH AMERICAN GAS PRICES

CERA's update of finding, development, and production costs for the major US and Canadian gas supply regions shows costs up an average 15 percent for 2003 compared with 2002, with further inflation in the pipeline through 2004.

- The regions where activity picked up the most generally saw the greatest cost increases, and the regions where drilling activity was muted generally saw the smallest cost increases.
- The GulfCoast region registered the highest upstream costs in North America, with combined finding, development, and production costs of close to $3.50 per thousand cubic feet equivalent.
- In spite of the increase in costs, the margin between gas prices and upstream costs also increased between 2002 and 2003, owing to the surge in natural gas prices. However, upstream cost inflation for 2004 is set to outpace gas price increases for some operators, eroding upstream margins.

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