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Canadian Exports Squeezed by Vast U.S. Shale Production

The role reversal in North American natural gas continues, with Canada fading as an international supplier and the United States growing as shale production transforms the continental market.

Canadian exports, while still the biggest single trade item, dropped last year to 2.7 Tcf, or 7.4 Bcf/d, according to the latest edition of an annual scorecard kept by the U.S. Department of Energy.

The 2015 performance only slipped by 0.5% from 2.72 Tcf, or 7.5 Bcf/d, in 2014 but sustained the downward direction that has lopped 29% off Canadian exports from their 2008 peak of 3.8 Tcf or 10.4 Bcf/d.

U.S. gas exports shot up in 2015 to 1.78 Tcf or 4.9 Bcf/d -- a 17.8% increase from 1.5 Tcf or 4.1 Bcf/d in 2014. The U.S. total included 1 Tcf, or 2.9 Bcf/d, of pipeline deliveries to Mexico, 700.6 Bcf, or 1.9 Bcf/d, in shipments into Canada, and a modest 28.1 Bcf, or 0.1 Bcf/d, in overseas liquefied natural gas (LNG) tanker cargoes.

U.S.deliveries into Mexico turned in the star performance of the 2015 continental market year, to top 1 Tcf for the first time by making a jump of 44.7% from 728.5 Bcf in 2014.

“Growing demand for power generation and industrial uses in Mexico and an increase in pipeline capacity has been widely cited as the main driver for this trend,” said the trade scorecard.

Overall, U.S. exports have been on the rise since the onset of large-scale shale horizontal drilling and hydraulic fracturing nine years ago, with the balance between north- and south-bound pipeline deliveries varying with market conditions.

The 2015 total of U.S. cross-border sales was up by 93% from 924 Bcf, or 2.5 Bcf/d, in 2007, when shipments to Canada were 559 Bcf, or 1.5 Bcf/d, while 365 Bcf or 1 Bcf/d went to Mexico.

The long-range volume trends on the continental gas market can be interpreted as an advance for U.S. energy self-sufficiency and security.

“In 2008, the U.S. saw the reversal of increasing net imports and this decline has continued in every year since,” the report said.

“In 2007, net imports as a percentage of U.S. gas consumption peaked at 16.4%. In 2014, net imports as a percentage of U.S. gas consumption were a smaller fraction -- 4.9% --  than at any time since 1987.”

But the shale supply abundance has also exacted a heavy toll on the value of the entire continental gas trade since annual average prices fell off their 2005-2009 peak range of US$8.50-9.50/MMBtu.

Prices fell at every market front on the borders of Canada, the United States and Mexico last year.

The annual average value of Canadian pipeline deliveries to the U.S. dropped by 45.6% to US$2.78/MMBtu in 2015 from US$5.12/MMBtu the year before.

Prices fetched by U.S. exports to Canada plunged by 48.4% to US$3.09/MMBtu in 2015 from US$5.99 in 2014. At the Mexican border, the annual average dropped by 39.6% to US$2.81/MMBtu in 2015 from US$4.65/MMBtu in 2014.

Effects of the shale supply abundance spilled over into the LNG tanker trade, where the annual average price for U.S.-produced cargos sank by 52.4% to US$7.42/MMBtu in 2015 from US$15.59/MMBtu in 2014.

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