The long retreat by Canadian natural gas exports may be ending. For the first time in about 18 months, pipeline deliveries to the United States increased in September, according to the latest report on the international trade by the National Energy Board (NEB).

The gain was slight. September export volumes rose by 1.3% to 283.7 Bcf from 280.1 Bcf from the same month of 2008. The recovery was concentrated in the U.S. Midwest, where September sales grew by 12% to 118.4 Bcf, and in the smaller Pacific Northwest market, which recorded a 30.6% jump in imports from Canada to 56.6 Bcf.

Even a marginal increase represents a sharp improvement in the performance of Canadian gas exports since their long drop began in spring 2008.

For the first 11 months of the 2008-2009 gas contract year ending Oct. 31, including the modest September recovery, NEB records show pipeline deliveries to the U.S. dropped by 10.4% to 3.07 Tcf from 3.43 Tcf during the same period of 2007-2008.

The September improvement was no sudden surprise. After running well into the double-digit range in late 2008 and early this year, the rate of decline in Canadian gas exports has been slowing. By August 2009 the erosion of pipeline deliveries to the U.S. was reduced to 1.2% or a marginal drop in monthly volumes to 288.3 Bcf from 291.8 Bcf in August 2008.

But the international gas trade’s improving volume trend remains slim consolation for deep deterioration in the traffic’s value.

This September’s average export price at the international border was down by 60% to US$2.91/MMBtu from US$7.30 in the same month of 2008. The slight volume gain was far too small to offset the price drop. Monthly export revenue was off by 59.5% to US$830.7 million in September 2009 from US$2.05 billion in the same month of 2008.

For the first 11 months of the current international gas contract year, Canadian exports fetched an average US$4.46/MMBtu or 49.7% less than the US$8.85 border price for October through September of 2007-2008. Revenue slid to US$13.79 billion — down by 54.8% from US$30.53 billion.

Exports are a cornerstone of the Canadian gas industry, accounting for up to 60% of total production with about four-fifths of supplies originating in Alberta.

In the Canadian industry capital of Calgary, part of the credit for the improvement on at least the volume side of the trade is being given to increased use of gas for power generation. In addition, the economics of a significant portion of gas production are understood to be more resilient than portrayed by widespread financial analyst calculations that average supply costs exceed market prices.

The Canadian gas industry is also changing gears by concentrating work on replenishing supplies now and increasing them later on larger, deeper and unconventional drilling targets in coal seams and shale deposits.

As a sign of the times, the Calgary arm of the Raymond James investment house observes that “the Canadian rig count has come to life in the last couple of weeks.” As of early December, 385 rigs were working in Western Canada. That was still down from the 437 rigs that were active at the same time in 2008 but up by 112 or 41% since November. “It’s normal for the rig count to increase at this time of year,” when Canadian cold weather freezes northern muskeg swamps and soft ground hard enough to support heavy equipment. “But the pace of increase is unusually rapid.”

As another sign of the times, Nexen Inc. announced plans to pour C$200 million into a deep horizontal drilling program in the Horn River Shale gas deposit of northeastern British Columbia. Nexen said pioneer wells into its 138 square miles of the formation achieved 100% success at going into production while achieving “substantial cost savings and productivity improvements” as experience was gained with shale gas.

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