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Volume Hikes, Exchange Rates Favor Canadians

Volume Hikes, Exchange Rates Favor Canadians

Rising sales volumes and favorable currency exchange rates more than made up for erosion of prices fetched by Canadian exports in the last natural gas contract year.

Canadian deliveries to the United States hit a record 3.11 Tcf for the 12 months that ended last Oct. 31, according to records kept by the National Energy Board. Last year's performance was a 7.1% improvement on 1996-97, even without the pipeline projects now under way to generate major increases in export capacity. Average gas export prices in 1997-98 slipped by 9.6% to US$1.97 per MMBtu from $2.18 during the previous contract year. But declines in the value of the Canadian dollar compared to U.S. money cut in half the damage to prices. Gas exports averaged C$2.68 per gigajoule in 1997-98, down only 3.6% from $2.78 the previous contract year. As a result, the total value of the increased sales volumes to the U.S. in the last gas contract year reached C$8.986 billion, which was a 3.2% gain from $8.71 billion in the preceding 12 months. If Canadian exporters had not been shielded by the exchange rates, they would have lost 3.3% with 1997-98 total revenues of US$6.15 billion compared to $6.35 billion the previous contract year. Canadian export sales under long contracts fell, continuing a trend that has lasted through the 1990s. Deliveries under short-term sales agreements rose 17.8% in the last contract year to 2.18 Tcf or 70% of total exports. The share of the U.S. market for Canadian gas that still uses long-term contracts fell 11.9% to 924.5 Bcf in 1997-98.

The fastest-growing outlet for exports was the U.S. Rocky Mountain region, where purchases of Canadian gas in 1997-98 jumped by 45% to 38.3 Bcf compared to 26.4 Bcf the preceding contract year.

The U.S. Pacific Northwest was the second fastest-growing importer of Canadian gas, with purchases rising by 14% in 1997-98 to 562.8 Bcf from 493.6 Bcf the previous year. That performance has firmed up demand and prices of production from British Columbia compared to the mid-1990s (although not 1996-97) and made northeastern B.C. into Canada's hot spot for drilling. A record 496 gas wells were drilled in northeastern B.C. last year and industry sources say every rig in the region is busy this winter. That trend is forecast to continue indefinitely, thanks also to the forthcoming Alliance Pipeline from northeast B.C. into Chicago.

Export pipelines into the northeastern states ran full, with Canadian sales volumes rising by 7.1% to 700.7 Bcf in 1997-98. The same thing occurred in the Middle West, where imports of Canadian gas rose 8.1% to 1.09 Tcf. Canadian sales to California declined marginally by 0.7% to 714.8 Bcf in 1997-98. Expressed in U.S. currency, Canadian border prices fell across the board in the last contract year with the lone exception of the Rocky Mountain region, where there was a marginal 1.7% increase to $1.65 per MMBtu. The decline was 12.9% to $2,55 in the Northeast, 12.3% to $2.01 in the Middle West, 6.5% to $1.69 in the Pacific Northwest, and 3.2% to $1.58 in California. Among American importers, local distribution companies were the hardest bargainers, achieving a 10.3% reduction in average prices paid for Canadian gas to US$2.42 per MMBtu during the 1997-98 contract year from $2.65 the previous 12 months. U.S. marketing organizations cut their import costs by 9.5 per cent to $1.88 while pipelines bargained down their import prices by 9.7% to $1.97. American gas end-users paid $2.42 for Canadian imports in 1997-98, down 8.7% from $2.65 the preceding contract year.

Gordon Jaremko, Calgary

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