International traffic in Canadian natural gas held firm through spring, postponing a widely forecast time of reckoning when soft prices and weakened drilling are expected to erode the trade, National Energy Board records show.

Pipeline exports to the U.S. rose in May to 290.5 Bcf, up 1.9% from 280 Bcf in the same month of 2006. Prices also staged a recovery, rising 14.9% to a May average of US$7.28/MMBtu at the international border from US$6.34 a year earlier.

In the major U.S. destinations for Canadian gas, May deliveries to California rose 9.5% to 39.3 Bcf and prices gained 10.7% to $6.48/MMBtu. Pipeline exports to the Midwest grew 2.1% in May to 11.3 Bcf and prices improved 15.9% to $7.21/MMBtu. May Canadian deliveries to the northeastern U.S. inched up 1.6% to 99.2 Bcf and prices rose 14.8% to $7.73/MMBtu. Pipeline exports to the Pacific Northwest slipped in May by a marginal 0.6% to 29.9 Bcf but average prices improved 16.5% to $7.12/MMBtu. In the smallest destination for Canadian gas exports, the U.S. Rocky Mountains region, May delivery volumes dropped 67.5% to 800 MMcf, but prices jumped 23.4% to $6.97.

But industry analysts such as FirstEnergy Capital Corp., pointing to persistent weak drilling as an early warning sign, continue to warn that erosion is on the horizon for Canadian supplies. As of the third week of August, only 336 drilling rigs, or 39% of the Western Canadian fleet of 869 units, were operating. At the same time last year, 535 rigs, or 66% of a fleet of 810, were drilling.

"Shallow activity is winding down as the carryover from pent-up second-quarter demand (when spring floods idled equipment) is satisfied. We expect activity levels to dwindle until the beginning of the winter drilling season," FirstEnergy said in a research note.

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