Higher Prices Boost Canadian Export Revenues 29%

The last contract year is going down as one to remember in the Canadian natural-gas community. Exporters chalked up a banner year before El Nino's warm winds blew down prices.

For the gas contract year that ended last Oct. 31, revenues reached C$8.7 billion (US$6.4 billion-a record that was a 28.8% improvement over the preceding 12 months, when sales to the United States fetched C$6.7 billion, or US$5 billion).

Although volumes set an export record, strong prices accounted for most of the revenue gain, according to a scorecard kept on the international gas trade by the National Energy Board. Volumes of sales to the U.S. were 2.9 Tcf in 1996-97, or a 2.9% increase from deliveries of 2.8 Tcf during the previous contract year. The overall average export price rose 24.8% in 1996-97, to US$2.19/MMBtu compared to US$1.75 the previous contract year.

The most improved export destination was California, where prices climbed 63.3% to C$2.13/gj (US$1.56) last year from C$1.30 (US95 cents) in 1995-96. The northeastern U.S. continued to stand out as the outlet paying by far the highest prices: an average C$3.73 (US2.74) for the 12 months ended last Oct. 31 compared to C$3.47 (US$2.55) the previous contract year. Prices rose by 24% to C$2.97 (US$2.18) in the U.S. Middle West, 47% to C$2.79 (US$2.05) in the Pacific Northwest and 35% to C$2.08 (US$1.52) in the Rocky Mountain region.

California also continued to be the biggest gas export outlet by volume, buying 759 Bcf in 1996-97 or 12.7% more than the previous contract year total of 673 Bcf. Sales volumes dropped 2.5% in the northeastern U.S. to 639 Bcf in 1996-97. Annual volumes stayed the same at 992 Bcf in the Middle West while rising by 1.2% to 484 Bcf in the Pacific Northwest and climbing 33.5% to 26 Bcf in the smallest export outlet, the Rocky Mountain region.

The last gas contract year also maintained a long-term trend forecast to continue indefinitely by virtually all government and industry agencies in Canada. Long sales contracts, the mainstay of the Canadian industry prior to the onset of deregulation and free trade in the mid-1980s, continue to shrink in favor of short arrangements with terms of two years or less. Exports under long-term sales arrangements shrank by 9.7% to 1 Tcf or just one-third of the trade during the 1996-97 contract year. Sales under short-term agreements rose 11.4% to 1.88 Tcf or two-thirds of the international gas trade.

Long-term sales contracts returned the highest prices in 1996-97, averaging C$3.24 (US$2.38) per gigajoule or 20% better than the previous year's C$2.70 (US$1.98). But short contracts scored the biggest price gains, rising 33% to average C$2.55 (US$1.87) in 1996-97 compared to C$1.92 (US$1.41) during the preceding 12 months.

Canadians knew the 1996-97 revenue records will likely stand for some time to come-and possibly into the next millennium-without being reminded that American prices have dropped by about a third since the end of the contract year, by the U.S. Energy Information Administration's annual winter markets report.

As El Nino swept across the continent late last fall, prices for some domestic sales within Canada retreated as low as $C1 (US70 cents) or even a few cents less during the warmest spells. In the industry capital of Calgary, local distributor Canadian Western Natural Gas filed with the Alberta Energy and Utilities Board for reduced commodity rates expected to give typical residential customers rebates of C$25 (US$18.35) each for the rest of the heating season Jan. 19 through March 31.

But it was noted that the EIA provided some additional food for thought about the effects on the international markets by the developing wave of Canadian export pipeline projects. The Washington agency identified rising Canadian imports as a factor in a forecast drop in U.S. wellhead prices by as much as 13% in 1998 and possibly more in 1999.

Gordon Jaremko, Calgary

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