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Canadian Exports Keep On Slipping

Canadian natural gas exports kept on slipping through the 2008-2009 heating season. Pipeline deliveries to the United States shrank even in frosty February, show trade records kept by the National Energy Board (NEB).

In the first four months of the gas contract year that started last Nov. 1, Canadian exports dropped by 10.7% to 1.23 Tcf from 1.38 Tcf in the same period of 2007-2008. Last February, the latest month reported by the NEB, the trade's volume fell by 8.4% to 308 Bcf from 336 Bcf a year earlier. The erosion continued a trend reported for calendar 2008 by the U.S. Department of Energy's Office of Natural Gas Regulatory Activities, which grants import permits and tracks their use. Last year, pipeline shipments to the U.S. from Canada fell by 5.3% to 3.653 Tcf from a record 3.857 Tcf in 2007.

Currency exchange rates worked in favor of Canadian exporters to provide them with some shelter against deteriorating prices. But the shield was not complete. The combination of dropping sales volumes and prices more than made up for currency gains owed to declines in the value of the Canadian dollar against its U.S. counterpart.

In Canadian loonies, gas export revenues for the four months ending Feb. 28 fell by 13% to C$9.16 billion from C$10.55 billion in the first one-third of the 2007-2008 contract year. The average price fetched at the border November through February dropped by 3.2% to C$6.88/gigajoule (GJ) from C$7.11/GJ in the same period of 2007-2008. In U.S. dollars, Canadian gas export revenues plunged by 29.7% to US$7.45 billion in the first four months of the current contract year from US$10.59 billion in the same period of 2007-08. The average border price dove by 21.6% to US$6.00/MMBtu November through February of 2008-2009 from US$7.65/MMBtu in the same period of 2007-08.

Year-over-year sales volumes for the first one-third of the contract year were down in all but one of the major U.S. destinations for Canadian gas exports. Pipeline deliveries to California dropped by 6.9% to 162.7 Bcf. The Midwest was off 13.3% to 529 Bcf. The U.S. Northeast fell by 13.9% to 363.6 Bcf. The lone exception was the Pacific Northwest, where Canadian deliveries rose by 2.9% to 174.9 Bcf.

Canadian industry analysts blame the slipping exports on a combination of economic recession, mostly moderate heating season weather, increased domestic production in the U.S. and erosion of supplies north of the international border by a prolonged drilling slump (see related story).

Estimates of lost Canadian productive capacity over the past year range as high as 1 Bcf/d, taking national total output down to about 15.6 Bcf/d, with the drop led by dwindling flows from the industry's mainstay Alberta gas fields. But the market is still far from burning off surplus western Canadian supplies, which have contributed to softening North American prices and slowing down drilling.

As of mid-May, despite startling cold snaps that kept Alberta furnaces burning, FirstEnergy Capital Corp. estimates in a research note that western Canadian storage facilities were 73% full with an inventory of nearly 355 Bcf. That was about 84 Bcf more than the gas on hand 12 months earlier and 114 Bcf above the previous five-year average for gas in western Canadian storage, the Calgary investment house calculated.

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