As Canada continues its own struggle to refill gas storage, the country’s southern neighbor is feeling the brunt of the impact in the form of severely reduced imports, according to Jefferies & Co. analyst Frank Bracken. For the first week of June, Canadian exports logged their lowest weekly level in six-years.

For the week ended June 6, Canada saw an injection of 16 Bcf, or 2.3 Bcf/d, bringing Canadian gas in storage to 180 Bcf. Bracken said that current inventories represent 12 days of supply, close to an all-time low for this week in history. Because of this, storage remains 137 Bcf behind year-ago levels, and with 148 days left in the injection season, the company said operators will need to inject 0.9 Bcf/d more this year to bring storage to adequate levels for the coming winter.

Bracken attributed the problem to a lack of supply. “A lot of Canadian reservoirs are highly productive and short-lived,” Bracken told NGI. “The result is the industry is having a terribly difficult time keeping ahead of declines, and they aren’t. At the root of the problem in terms of reduced Canadian imports is you’ve got reduced deliverability from Canadian fields.”

The investment banking firm found that 1Q2003 production results of the top 50 Canadian gas producers revealed a 1 Bcf/d decline in production. “It is our belief that this decline is being evidenced in the anemic volumes reported by most of the major import pipelines over the last several weeks,” Jefferies said. The company believes lower net availability of pipeline-related volumes will help to keep the cash markets tight this summer.

“But to rub salt in the wound, you have a situation this summer that you didn’t have last summer,” Bracken said. “Last summer you had a very quick rebuild of [Canadian] storage based on the fact that Canadian gas storage was at all-time record highs,” he said, noting that Canada was basically finished with its injection season on July 1, 2002.

“This year there is a considerably larger amount of gas that needs to go in the ground to get back to full,” Bracken said. “Unlike this country where that is an option, there it is not. It will get done before volumes get sent south of the border.”

This effect is being illustrated in Jefferies’ weekly Canadian export watch, which is part of the company’s weekly update. It showed that net imports from Canada averaged 7.2 Bcf/d for the week ended June 13, down 1.8 Bcf/d from year-ago levels and 0.6 Bcf/d lower than the previous week’s exports. The company said the 7.2 Bcf/d figure represents a “sea change” in Canadian export trends, as it was the lowest weekly export since July 1997.

“Those two factors have contributed to the very sharp decline in Canadian exports to the U.S.,” Bracken said. “This is something that we have been predicting for the better part of a year now and it is coming to pass in a big way.” He added that this need to rebuild its own storage inventory will undoubtedly keep Canadian gas from being exported to the United States, at least through the end of October.

Adding to the U.S.’s natural gas squeeze is increasing demand from Mexico. Exports to Mexico continue to exceed year ago levels. Jefferies found that for the week ended June 13, exports remained “essentially flat with the prior week at 1 Bcf/d, up 0.1 Bcf/d versus the comparable week in 2002. Based on new pipelines constructed to service new Mexican markets, we see U.S. exports to Mexico averaging 1.3 Bcf/d this summer, up 0.4 Bcf/d from the same period in 2002,” the company said.

As a result, Jefferies calculated that net pipeline imports into the United States are down 1.9 Bcf/d from year-ago levels.

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