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U.S. Imports of Canadian Gas Fell on Soft Heating Demand

Lukewarm heating season demand cut Canadian gas export volumes but peaking prices increased revenues during the first quarter of the current contract year on the international natural gas market. Canadian pipeline deliveries to the United States during the three months ended Jan. 31 fell 9% to 925.3 Bcf compared to the same period of 2004-05, show trade records kept by the National Energy Board.

But Canadian export revenues for the first quarter of the 2005-06 gas year were a stellar US$9.8 billion, up 47% from US$6.7 billion during the same period of 2004-05. Exporters benefited from lingering price spikes triggered by supply scares in the wake of late summer hurricane damage to U.S. production in the Gulf of Mexico.

Canadian gas fetched an average US$10.54/MMBtu at the international border during the three months ended Jan. 31, up 61% from US$6.54 during the same period a year earlier. But prices also began their turn down to current levels late in the quarter. In January, the monthly export average softened to US$10.08.

The longer-range trend for gas to fall out of step with inflated oil prices has ignited a general lowering of expectations among Canadian industry analysts. The changed consensus showed notably in the Alberta government's new budget for fiscal 2006, a 12-month period ending March 31, 2007.

The province ranks among the keenest observers of gas industry trends. More than one-third of provincial government revenue is generated by oil and gas royalties and drilling rights sales -- and about 75% of the total comes from gas. Provincial surveys of industry analysts, including privately purchased advice as well as published forecasts, prompted the government to lower its gas price expectation for the next three years.

In the government's just-completed 2005-06 fiscal year, prices fetched by Alberta production averaged CDN$8.40/gigajoule (US$7.50/MMBtu). The province is braced for gas to subside to an average CDN$7.50/GJ (US$6.38) in 2006-07, CDN$6.50 (US$5.80) in 2007-08 and CDN$6.25 (US$5.58) in 2008-09.

But the province's forecasters also observe that prices are becoming ever harder to predict. Multiple projections tracked by government surveys exhibit "a fairly wide range of views," the budget documents noted. On gas for 2006-07 alone the range of variation among price forecasters is CDN$2.75/GJ (US$2.45/MMBtu).

Few of the experts are willing to venture even firm guesses about the markets beyond the next 12 months, government officials added. In the international gas trade, the NEB reported Canadian export shipments were down almost across the board to major destinations in the first quarter of the current contract year ending Oct. 31. Pipeline deliveries to California were down 8.1% to 121.4 Bcf. Exports to the U.S. Middle West were off 9.7% to 391.3 Bcf. Canadian shipments to the U.S. Pacific Northwest dropped 22.4% to 101.4 Bcf.

The lone exception to the downward trend in export volumes was the smallest Canadian market in the U.S. Pipeline shipments to the Rocky Mountains region rose 33.8% to 3.2 Bcf during the three months ended Jan. 31.

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