Widely expected, potentially drastic shrinkage of Canadian supplies as a factor in the international natural gas market is still only a forecast on paper instead of the reality in the pipelines, according to records of Canada's National Energy Board (NEB).
Canadian pipeline deliveries into the United States increased by 4.8% during the first one-third of the 2010-2011 contract year ending Oct. 31 to 1.22 Tcf from 1.16 Tcf in the comparable period of Nov. 1, 2009 to Feb. 28, 2010.
The performance reversed the trend that has generated current projections of long-range decline in international gas trading. The forecaster consensus, reflected in a recent "deliverability" outlook report by the NEB, calls for further erosion. But the board's monthly trade reports show volumes stabilizing at reduced levels.
At this time a year ago the NEB statistical barometer registered a 6% decline in Canadian pipeline deliveries into the United States to that 1.16 Tcf for the November-February 2009-2010 heating season. During the same period of 2008-2009, the export volume was 1.23 Tcf.
In the first one-third of the current international contract year, all the shrinkage recorded by the NEB is in the value rather than the volume of the gas trade.
The average price fetched by Canadian gas at the U.S. border fell by 18% to US$4.38/MMBtu during November-February 2010-2011 from US$5.35/MMBtu in the same months of 2009-2010. In the year-over-year heating season tallies, Canadian export revenues dropped by 14% to US$5.4 billion from US$6.3 billion.
As measured in the exporters' own currency, the decline in the trade's value looked much worse due to unfavorable exchange rate trends that have raised the worth of the Canadian dollar to par or slightly higher compared to its U.S. counterpart. In loonies the average Canadian gas export price dropped by 22% to C$4.08/gigajoule (GJ) during November-February 2010-2011 from C$5.25/GJ in the 2009-2010 heating season. Revenues shrank by 18% to C$5.4 billion from C$6.6 billion.
The price and revenue erosion, as accelerated by the adverse exchange rate trend, is the prime factor cited by Canadian consensus projections of continuing decline in the gas trade.
The value trends drive a sharp drop in gas drilling and a switch in field targets to oil. Low expectations for the gas trade are also fueled by high forecasts of U.S. shale supplies, natural decline of conventional Canadian reserves, rising domestic industrial consumption by Alberta oilsands thermal extraction projects and increasing pipeline tolls as costs are spread thicker over reduced traffic.
The NEB's latest Canadian deliverability outlook, released May 12 after a survey of the industry, calls for production to slide into a range of 11.7-13.7 Bcf/d from the 2010 average of 14.2 Bcf/d as of 2013. The total peaked at 17.5 Bcf/d in 2007. Taking the anticipated rise in oilsands gas use as well as the supply erosion into account, Canadian gas available for international trade is forecast to shrink to the 2.8 Bcf/d area in 2013, a drop of 70% from the early 2000s high of 9-10 Bcf/d.
The observed postponement of the forecast shrinkage has yet to change the grim consensus supply forecast. The apparent supply stability is partially credited to a side-effect of the widespread change in Canadian drilling targets.
The industry cannot help but at least temporarily halt the decline -- and possibly reverse it -- with literally thousands of wells that are aimed at liquids-rich gas in Alberta, say geological, engineering and financial analysts.
There are examples within short driving distances of the Canadian industry capital of Calgary of oil and liquid byproducts drilling programs generating gas pipeline construction projects. Decades-old provincial resource conservation regulation prevents producers from simply burning off unwanted gas with oil field flares.
But unwanted accumulation of domestic surpluses is at least being held down by growing industrial demand, which accounts for more than half of all Canadian gas use. In March the latest monthly data from Statistics Canada registered a 9% increase to 155 Bcf in national industrial gas use. Total Canadian domestic gas consumption, including residential and commercial demand, rose 14% to 300 Bcf.
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