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Canadians Defy Gloomy Gas Export Forecasts

February 21, 2005
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Canadian pipeline deliveries to the United States held firm as strong drilling prevented a widely forecast supply decline during the 2003-04 natural gas contract year, according to records at the National Energy Board.

Canadian shipments across the border in the 12 months that ended Oct. 31 totaled 3.54 Tcf. During the same period of 2002-03, international deliveries totaled 3.55 Tcf. Southbound gas traffic slowed down by only a marginal 10 Bcf or 0.2% over the two-year period, a drop about one-tenth the size anticipated by gloomy forecasts.

Prices fetched by Canadian gas at the international boundary averaged US$5.30 per MMBtu for the gas contract year ended last Oct. 31, up 6.5% from $4.98 during the preceding 12 months. The U.S. Midwest, California and the Rocky Mountains region were the favorite destinations of Canadian exports, with all three regions showing growth. Deliveries to the Pacific Northwest and the U.S. Northeast shrank.

Canadian deliveries to the Midwest were 1.61 Tcf in the gas contract year that ended last Oct. 31, up 2.1% compared to 1.58 Tcf during the preceding 12 months. Prices for shipments to the Midwest averaged US$5.29 per MMBtu in 2003-04, up 5.8% from $5 in the preceding contract year.

Exports to California were 460.7 Bcf in 2003-04, up 0.3% from 459.5 Bcf during the previous contract year. Prices on California deliveries rose 8.9% to an average US$5.05/MMBtu in 2003-04 from $4.64 in the preceding 12 months.

Canadian deliveries to the Rocky Mountains region jumped 620% to 7.7 Bcf in 2003-04 from 1.1 Bcf the previous gas contract year. Prices in exporters' smallest destination market jumped 26.6% to a 2003-04 average of US$4.99/MMBtu from $3.94 in the 2002-03 gas contract year.

Exports to the U.S. Northeast slipped by 3.1% in 2003-04 to 1.08 Tcf from 1.11 Tcf during the previous gas contract. Prices fetched at the international border for deliveries to the northeastern states were up 6.6% to an annual average US$5.64 per MMBtu in the 12 months that ended last Oct 31 from $5.30 in the previous gas contract year. Canadian shipments into the U.S. Pacific Northwest were off by 3.3% at 386.7 Bcf during the 2003-04 gas contract year compared to 400.1 Bcf in 2002-03. Pacific Northwest prices were up 6.1% to an annual average US$4.70 at the international border in the last gas contract year from $4.43 during 2002-03.

Purchases of Canadian gas by U.S. pipelines fell by 56% in 2003-04 to 55.5 Bcf from 126.1 Bcf during the 2002-03 gas contract year. Buying by marketers was off by a marginal 0.8% to 2.44 Tcf in the gas contract year that ended last Oct. 31 from 2.46 Tcf during 2002-03.

Imports of Canadian gas by U.S. local distribution companies rose 12.9% to 667.4 Bcf during the 2003-04 contract year from 591 Bcf in 2002-03. Direct purchases of Canadian supplies by U.S. gas end-users rose 2.2% to 380.7 Bcf in 2003-04 from 372.5 Bcf in 2002-03.

The export performance confirmed projections by the NEB last November, when a "deliverability" assessment by the board reversed previous forecasts of an imminent supply decline. The NEB pointed to acceleration in conventional drilling across western Canada from 15,100 gas wells in 2003 to a forecast 17,900 in 2006.

The market was also expected to start seeing results of coalbed methane development, which is just beginning across western Canada following technology improvements and exploration successes at finding dry deposits where production begins almost immediately after drilling without delays to drain water or settle environmental conflicts with rural communities.

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