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NEB: Canadian Gas Exports to U.S. Stabilizing

Canadian natural gas exports to the United States are stabilizing at reduced levels after four lean years of decline, show trade records of the National Energy Board (NEB).

The latest NEB scorecard registers an improvement by recent standards. Canadian export volumes only changed marginally in the early part of the current heating season, and the direction was up.

Pipeline deliveries to the United States in November and December of 2010, the first two months of the traditional gas contract year tracked by the NEB, rose by 0.8% to 571 Bcf from 566 Bcf for the same period of 2009.

That was the first time the export volume numbers for the early heating season period were even slightly positive since the onset of the prolonged global economic and financial contraction. NEB records began showing a decline in Canadian gas exports during the spring of 2008, reversing an unbroken string of increases stretching back to the mid-1980s.

Since 2007, when Canadian November-December pipeline deliveries into the United States were 680 Bcf, the early heating season traffic has shrunk by 109 Bcf or 16%.

The value of the trade continues to shrink.

The average price fetched by Canadian gas at the international border dropped by 15% to US$4.19/MMBtu in November-December 2010 from US$4.92/MMBtu a year earlier. The early heating season price of Canadian gas exports has plunged by 43% from US$7.31/MMBtu in 2007.

The combination of slipping sales volumes and dropping prices has gutted Canadian gas trade revenues. The November-December 2010 total received for exports, US$2.4 billion, was down by 20% from US$2.8 billion a year earlier and 52% below the US$5 billion that Canadian exporters took home in the last two months of 2007.

The trend in the international gas trade, which absorbs more than half of Canadian production, also continues to drive an about-face in field supply activity.

As of March 24, the number of drilling rigs at work in Canada has nearly doubled to 481 compared with 250 at the same time last year. But gas is the target for only one-third of the wells compared to 52% during the first week of spring in 2010, estimates FirstEnergy Capital Corp., which makes a specialty of tracking the trends in detail.

Oil, currently worth about four times as much as gas on the industry's energy-equivalence scale, is increasingly dominating Canadian drilling for the first time in about 20 years. "Tight oil," in dense geological formations previously rated as beyond economic reach, is being tapped by Canadian adaptations of horizontal wells and aggressive rock-fracturing fluid injections developed for shale gas in the United States.

Even the rigs probing for gas are understood to be aimed at deposits known to be soaked in oily vapors that readily extracted as liquids such as condensate, also known as natural gasoline in Canada, or lighter but still wet byproducts like propane, butane and ethane. Demand for gas byproducts is especially strong in Alberta, where they fetch premium prices as "diluent" or thinner for pipeline transportation of molasses-like bitumen from the oilsands.

The trends are drying up Canada's share in the North American gas glut, indicate FirstEnergy's counts. The stockpile backed up in storage is shrinking. "We will exit the 2010-11 withdrawal season in a far better position than we expected," the firm predicts. "At present total inventories [about 280 Bcf) are 32% or 135 Bcf below last year's level."

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