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Gas Glut Continues to Weigh on Canadian Exporters

Setbacks inflicted on Canadian exporters by the North American gas glut keep going from bad to worse, confirm the latest trade data compiled by the National Energy Board (NEB).

For the first three-quarters of the contract year ending Oct. 31, Canadian pipeline delivery volumes to the United States dropped by 12.5%. Prices fetched at the international boundary dropped by 36%. Export revenues tumbled by 54%, as expressed in Canadian dollars.

During November through July of 2008-2009, Canadian gas shipments to the United States were 2.498 Tcf compared to 2.857 Tcf for the same nine-month period of 2007-2008, the NEB records show. The sales volume trend this year sharply accelerated a decline that set in during spring 2008 at a much slower rate in the area of 5%.

Export prices, as expressed in the buyers' currency, averaged US$4.78/MMBtu in the first three-quarters of the 2008-2009 gas contract year, down by 47% from US$9.05 during the same period of 2007-2008. In Canadian loonies, the price slippage was a milder 36% down to C$5.40 per gigajoule from C$8.47 due to favorable exchange rate movements that cushioned the blow.

Canadian export revenues, in U.S. dollars, plunged to US$12 billion in the first three-quarters of the 2008-2009 contract year, down 54% from US$26 billion in the same period of 2007-2008. Translated into loonies the drop was 44% to C$14.6 billion from C$26 billion.

Current exchange rate trends are expected to aggravate gas exporters' woes for the rest of this year if the money markets continue their current performance. The Canadian dollar is approaching par with its U.S. counterpart, thereby eliminating the exchange rate cushion that softened the blows dealt out by the gas market.

Expert opinion north of the border remains divided over prospects of sales, prices and revenues in the near future. Bears believe prices will stay soft due to excess supplies, lingering economic recession and continuing unfavorable exchange rate trends that could push the Canadian dollar above parity with the U.S. currency. Bulls maintain that the economy is turning around, a normal winter could burn off surpluses, and projected Canadian supply losses due to prolonged drilling slumps of about 1 Bcf/d will contribute to tightening the North American gas market.

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