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Despite Gloomy Predictions, Canadian Export Growth Continues

Canadian natural gas exports to the United States continued to grow last winter following a growth track that was restarted during the last contract year, data from the National Energy Board (NEB) show. Canadian pipeline exports climbed by 8.5% during the first four months of the new contract year that ends Oct. 31, according to NEB records.

Deliveries into the U.S. for the 2004-05 heating season months of November through February totaled 1.33 Tcf, up from 1.22 Tcf during the same period of 2003-04. The performance underlined unexpected strength in Canadian gas production that began to show up last year when exports defied an industry and government consensus that declines were at hand.

Canadian pipeline deliveries to the U.S. held firm through 2003-04 as the industry responded to strong prices by stepping up the pace of conventional drilling and by making a start on commercial coalbed methane development.

Canadian shipments across the border in the 12 months that ended last Oct. 31 totaled 3.54 Tcf. During the same period of 2002-03, international deliveries totaled 3.55 Tcf. Southbound gas traffic slowed by only a marginal 10 Bcf or 0.2% over the two-year period, a drop about one-tenth the size anticipated by gloomy forecasts.

In the first four months of the 2004-05 contract year, prices sent the Canadian industry a strong signal to keep up the acceleration of field development. Exports fetched an average US$6.44/MMBtu at the international border, up 23.5% from $5.21 during the November-through-February period of 2003-04.

Canadian industry revenues scored even bigger gains due to the combined impact of increased volumes as well as rising prices. Export revenues for the first one-third of the current contract year were US$8.65 billion, up 34% from $6.45 billion in the same period of 2003-04.

Delivery volumes increased to all export destinations. Heating season shipments were up by 17% at 428 Bcf to the northeastern states, where prices were up 18% at US$6.68/MMBTU. Middle West deliveries were up by a fraction of 1% at 564.6 Bcf as prices climbed 26.2% to $6.51.

Canadian shipments to California rose 10.8% to 168.4 Bcf as prices climbed 22% to $6.05. Pacific Northwest deliveries gained 16.3% to 168 Bcf as prices rose 31% to $6.01. Exports to the Rocky Mountains region doubled to 3.2 Bcf as prices climbed 24% to $6.

Although unfavorable spring weather has held Canadian drilling back somewhat, industry associations are projecting 2005 will be another record year with more than 22,000 wells in the offing. Gas continues to be the target for about 70% of Canadian drilling. Coalbed methane drilling is expected to account for the majority of the growth in sheer numbers, although activity is on the rise in deeper exploration plays along the foothills of the Rockies in Alberta and northeastern British Columbia.

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