After a five-year slide that lopped 75% off prices received by Alberta producers, Canadians are braced to bump into a floor under the buyers’ market for natural gas.

Amid deteriorating production and cold snaps confirming forecasts of a return to the chilly Canadian version of “normal” heating seasons, a Toronto-based national retailer has launched a sales drive urging consumers to sign contracts that “lock in” current price lows while they last.

The Ontario Natural Gas Alliance (ONGA) – a partnership of the province’s top service providers, Enbridge Gas Distribution and Union Gas – inaugurated a public relations campaign saying that the product remains a bargain even if prices stop sliding.

From western producers’ point of view, the past five years were a disaster that stopped gas drilling everywhere except for trials of shale production in northern British Columbia. The B.C. work, of adapting horizontal drilling and hydraulic fracturing methods devised in the United States, is intended to lay foundations for long-range development of liquefied natural gas (LNG) exports to Asia rather than to increase domestic supplies for Canadians.

Prices fetched by the nation’s traditional mainstay suppliers in Alberta plunged to an anticipated 2012 annual average in the range of C$2.20-$2.25 per MMBtu (US$ at par) from C$8.10-C$8.50/MMBtu in 2008, according to records kept by industry analysts in the Canadian gas capital of Calgary such as GLJ Petroleum Consultants and AJM Deloitte.

The economics, engineering and financial service houses on the Canadian supply side of the North American market expect at least modest price recoveries to start in 2013. On the buyer side the Canadian Gas Association (CGA), voice of distributors and dealers, suggests the market touched bottom by hitting a low in the C$2.00/MMBtu range last spring that soon turned out to be unsustainable. CGA’s current outlook calls for stability at partially recovered prices rather than yet more downward slippage.

ONGA calculates that the prolonged price slide reduced total annual costs of gas in Ontario by about C$4 billion. Typical households in Canada’s most populous province will this year pay an average of C$400 less for gas service than they did in 2008, the distributors also estimate.

In a sales pitch aimed at widening the gas market share of home energy consumption, ONGA says that households which switch to gas from the old Ontario energy mainstays of oil and electricity can save C$1,700 per year or more. In transportation fuels, another largely untouched Canadian gas marketing target, the distribution companies say they can offer truck fleets savings of 30-40 cents in costs per kilometer compared to costlier and more heavily taxed refined oil products.

Natural gas also stands out as the logical replacement fuel for coal-fired thermal power plants that Ontario is committed to phasing out and has little prospect of replacing with wind or solar electric generation unless consumers become willing to pay much higher utility bills, ONGA says. Potentially steep increases from financing proposed renewable energy projects with increases in regulated rates known as the Ontario FIT or feed-in tariff have emerged as issues in a forthcoming provincial election.

An opinion poll commissioned by the gas distribution companies says a 73% majority of Ontario residents rate their stock in trade as the most affordable coal substitute. A 60% majority support increased use of gas for power generation despite years of political crusading in support of renewable energy alternatives by supporters of the province’s shaky government of Liberals, whose leader has resigned as premier and shut down the legislature in Toronto until the party replaces him.

At the same time as potential increases in Canadian domestic demand for gas surface, effects of low prices are showing up in deteriorating production.

Industry projections collected by the National Energy Board (NEB) anticipate an overall decline of 3.4% in 2012 annual average total Canadian gas production capacity to 14 Bcf/d from 14.6 Bcf/d in 2011.

In Alberta, production is down this year by an estimated 6.5% to 9.7 Bcf/d from 10.4 Bcf/d in 2011. In the emerging shale development hot spot of B.C. the projected production increase – by two%, to 3.5 Bcf/d this year from 3.4 Bcf/d in 2011 – falls short of making up for the Alberta decline.

The supply picture, coupled with potential growth in demand and a return to a colder normal heating season, even make a revival of at least modest winter price spikes conceivable, says the current NEB Canadian market forecast.

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