Since peaking last year in the second quarter with the top output from the Ladyfern field in British Columbia, Canadian gas production and exports to the United States have been on a slippery slope and that isn’t expected to change anytime soon.

Net Canadian exports to the United States are down an estimated 10-11% year to date, and continued declines in production and new incremental gas demand from oil sands production projects should cause net exports to continue falling over the next several years, according to Lehman Brothers analyst Thomas Driscoll.

The Department of Energy’s Office of Fossil Energy said in September that first quarter gas imports from Canada had fallen 7.4% (56 Bcf) from 1Q2002 to 899.4 Bcf, while LNG imports had grown 191% to 75.1 Bcf (see Daily GPI, Sept. 22). That trend is expected to continue unless large new long-life gas plays are found or the Mackenzie Delta pipeline system is put into service.

Until that time, Driscoll believes the decline in exports to the United States will force U.S. industrial and perhaps utility customers to reduce consumption.

Canadian production year-to-date (as of Oct. 30) is down 3-3.5% compared to the same period last year. Driscoll estimates that Canadian production will fall this year by 3.2%. As a result, Canadian consumers have been bidding gas away from the U.S. market. For the full year, Driscoll expects exports to the United States from Canada will fall 10%.

“While an increased focus on long-life plays by majors such as Burlington Resources, Canadian Natural Resources, Devon Energy and EnCana should eventually provide a supply response in Canada, we do not believe it will be enough to fully offset declines in Canada,” Driscoll said in an equity research note. “As a result, we believe total Canadian gas production will fall 2-3% in ’04, 1.5-2% in ’05 and 0.5-1.5% in ’06-’08.”

Driscoll said imports to the United States have to fall because if they remained flat, Canadian demand would have to fall an average of 2.5% per year. “We are skeptical that [Canadian] demand [would] decline this much, particularly given the amount of expected incremental demand to come from gas burning oil sands projects over the same time frame.”

Driscoll estimates that up to 700,000 b/d of incremental synthetic oil production will come on line from gas burning oil sands projects between the end of 2003 and the end of 2008. And estimated 485-640 MMcf/d of gas will be required to serve this new demand. That is roughly 3-4% of total Canadian gas production and 6-7% of estimated 2003 net exports to the United States.

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