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North America Cross-Border Gas Flows Finding Their Rhythm

A new pattern is developing in the natural gas trade across North America, with shale supplies from the United States marching into both Canada and Mexico to an emerging seasonal rhythm.

For the second consecutive year, combined pipeline imports of U.S. gas by Canada and Mexico will exceed 1 Tcf by a wide margin, according to flow records collected by the U.S. Department of Energy (DOE).

The latest trade scorecard posted by DOE’s Office of Fossil Energy, for the first nine months of 2014, shows 1.13 Tcf of north- and southbound U.S. gas exports.

The U.S. cross-borders sales volume was down by 7.5% from 1.22 Tcf in the first three quarters of 2013. Trade with Canada slipped. But southern growth in Mexico offset most of the northern erosion.

U.S. pipeline deliveries into Canada shrank by 18% to 581.8 Bcf last January through September from 708.3 Bcf during the same period of 2013. First three-quarters volumes of U.S. exports to Mexico rose by 7% to 546.1 Bcf last year from 510.3 Bcf in 2013.

The partial retreat by U.S. exports from Canada followed a landmark decision by the National Energy Board (NEB) on the finances and services of TransCanada Corp.’s natural gas Mainline.

The ruling cut tolls, enabling Alberta supplies to regain previously lost ground where they compete with U.S. exports in Ontario and Quebec.

But the international rivalry is far from over. TransCanada and the central Canadian gas distribution companies -- Union (Spectra) in southern Ontario, Enbridge in Toronto and Quebec’s Gaz Metro -- are collaborating on additions to pipeline routes for competitive imports from the U.S., with encouragement from the public utilities commissions of both provinces.

In a detailed review of monthly and quarterly gas trade records, DOE detects early signs of a continent-spanning seasonal rhythm. The data points to a possibility of alternating directional peaks for U.S. gas exports.

In the emerging trade rhythm, northbound pipeline deliveries are strong during Canadian heating seasons. Southbound shipments advance during summer peaks in Mexican demand for air-conditioning electricity from gas-fired power plants.

In 2014, DOE said, “During the second quarter, exports to Mexico exceeded exports to Canada for the first time in several years, a milestone highlighting the upward trend in exports to Mexico. During the third quarter, Mexican exports increased further and widened the gap with Canadian exports, reaching a new monthly record in July with a total of 69.4 Bcf.”

Deliveries to gas-fired power plants by U.S. and Mexican shippers, Sempra and Energia Azteca, via a pipeline crossing at Ogilby, CA, accounted for the growth in southbound exports, DOE said.

Northbound flows showed early signs of recovery as fall rolled around. “Historically higher during the winter months, natural gas exports to Canada may increase above volumes sent to Mexico in months following the third quarter, according to data. However, recent increases in exports to Mexico have been dynamic and will bear watching for future developments,” DOE said.

U.S. imports from Mexico remained negligible, at 1.1 Bcf for the first nine months of 2014.

From the perspective at the top of the continent, the record above all shows continuation of a trend since 2008 of Canadian gas being backed out of U.S. markets by growing U.S. shale production, especially from the eastern Marcellus geological formation.

In January-September 2014, Canadian pipeline deliveries into the U.S. dropped by 6% to 2.01 Tcf from 2.14 Tcf during the same period of 2013.

The NEB has reported that its trade data indicates Canadian exports for full-year 2014 will slump to an average of 7.3 Bcf/d -- their lowest level since 1994 and down by 27% from their 2007 peak of 10 Bcf/d.

But the value of the gas trade rose across North America during the first three-quarters of 2014.

The average price fetched by Canadian gas at the U.S. border rose by 55.4% in the first nine months of 2014 to US$5.55/MMBtu from US$3.57/MMBtu for the same period of 2013.

U.S. exports into Canada scored a first three-quarters 2014 average price of US$6.56/MMBtu, up 60.7% from US$4.08/MMBtu the year before.

U.S. northbound pipeline deliveries go to Canada’s highest value markets in Ontario and Quebec. Canadian southbound shipments perform less well on in the overall averages by going to a wide range of low, medium and high-price destinations across the continent.

U.S. southbound exports into Mexico went for an average US$4.80/MMBtu in the first nine months of 2014, up 24% from US$3.88 during the same period of 2013.

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