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U.S.-Canada Gas Trade Turning About

The tables are turning in the natural gas trade between Canada and the United States as U.S. pipeline exports into Canada set a fifth consecutive annual record last year, according to the latest traffic count by the U.S. Department of Energy (DOE).

Northbound U.S. exports grew by 26% to 937 Bcf in 2011, 6% to 742 Bcf in 2010, 19% to 700 Bcf in 2009, 22% to 590 Bcf in 2008 and 41% to 482 Bcf in 2007, show annual scorecards released every spring since 1994 by the DOEs Office of Natural Gas Regulatory Activities.

The previous record high for U.S. gas exports to Canada was 395 Bcf in 2004, a peak that was only 42% of the new benchmark of 937 Bcf in 2011.

Over the past five years, the annual average growth rate in deliveries of U.S. gas into Canada has been 119 Bcf, or 23%. Over the past 10 years, annual U.S. exports to Canada increased six-fold from 158 Bcf in 2001 to hit the 2011 benchmark of 937 Bcf. Before that, the northbound gas traffic stalled in a slow lane of 29-75 Bcf/year through the 1990s.

DOE, which grants international gas trade permits and tracks their use, notes that the market is still lopsided. "The single largest destination for U.S. gas exports in 2011 was Canada, although export volumes were far smaller than volumes of imports from Canada to the U.S," stated the annual scorecard.

Pipeline exports from Canada were still more than three times the northbound flows last year. But comparisons of the volume totals mask another side of the emerging international gas market trend. Canadian shipments into the U.S. have been in retreat for four years. Since peaking at 3.85 Tcf in 2007, annual Canadian pipeline deliveries to the U.S. fell to 3.65 Tcf in 2008 then 3.34 Tcf in 2009. After a slight recovery to 3.53 Tcf in 2010, the slide resumed last year, down to 3.2 Tcf.

By historical standards, the new level of U.S. international gas sales is not small even by Canada's standards as the world's second-biggest gas exporter after Russia. Prior to the onset of North American energy deregulation and free trade in the mid-1980s, Canadians rated a 1 Tcf gas export year as a banner performance.

Total U.S. exports, including deliveries to Mexico and modest liquefied natural gas (LNG) sales, were 1.43 Tcf in 2011, up 32% from 1.14 Tcf in 2010. U.S. sales in Mexico staged a 50% increase to 500 Bcf last year.

The new gas export pattern -- U.S. growth and Canadian shrinkage -- is poised to continue, with two additions to northbound pipeline capacity into Ontario advancing through planning and regulatory stages. The projects -- proposed by a partnership of Union Gas Ltd. Enbridge Gas Distribution in the Toronto region, and TransCanada Corp. at Niagara Falls -- seek to add a combined total of about 1.3 Bcf/d of delivery capacity into Ontario from the U.S.

Time and response by gas dealers will tell whether the projects are in competition or complement one another. Both have reported that informal canvasses of the market encountered demand for more than one Bcf/d in added service. Both open up access to gas re-export routes into the northeastern U.S. as well as the biggest Canadian energy markets in Ontario and Quebec.

Canadian industry analysts identify powerful drivers behind the changing gas trade pattern: natural depletion of Alberta wells, reduced drilling due to poor prices, development of U.S. shale supplies close to markets, unfavorable long-distance pipeline tolls between Alberta and Ontario, rising consumption by Alberta thermal oilsands projects, and increasing emphasis on tying the growth side of the industry in British Columbia into Asia with proposed LNG tanker terminals on the north Pacific coast.

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