A comeback by Canadian natural gas exporters shows signs of accelerating fast, sharply reversing a decline in 2002 that broke a 14-year winning streak of consecutive annual record sales to the United States.

Volumes of Canadian deliveries, prices and revenues in the U.S. all registered double-digit increases in November and December, 2002, the first two months of the current gas contract year which ends Oct. 31, according to records kept by the National Energy Board.

Export volumes rose by 10% to 660 Bcf in November and December of 2002 from 600 Bcf in the same period a year earlier. Average prices fetched by Canadian gas at the international border climbed 45% to US$3.97 from US$2.73. Revenues jumped 60% to US$2.64 billion from US$1.65 billion.

The rally accelerated rapidly over the two months. In November of 2002, deliveries rose 4.5%, prices gained 37% and revenues climbed 43% compared to the same month of 2001. In December, export sales volumes gained 15%, prices jumped 54% and revenues swelled by 77%.

The strong performance turned the tables on a the 2001-02 contract year, when Canadian gas deliveries to the U.S. dropped by 3.4% to 3.7 Tcf, prices lost 41% to US$2.85/MMBtu and revenues fell 43% to US$10.6 billion. It was the first reversal since the onset of deregulation and energy free trade in the mid-1980s launched a growth streak that multiplied Canadian gas exports to the U.S. five-fold. The trade has grown to account for about 60% of Canadian production.

The revival is being credited in Canada to a cold winter, economic recovery, reconstruction of industrial demand destroyed by the extreme price spike of 2000-01, and tightening supplies owed to a drilling slump across North America last year.

Export volumes and prices were up in all the principal U.S. destinations for Canadian gas. In November-December, deliveries to California climbed 15% to 108 Bcf and prices gained 36.5% to US$3.42/MMBtu. Canadian gas exports to the middle-western U.S. rose 12% to 265 Bcf and prices improved 54.2% to US$3.98. Shipments to the northeastern states increased 22% to 214 Bcf and prices rose 42% to US$4.31.

Domestic markets are also improving, show monthly updates by Natural Resources Canada’s natural gas division. In November, Canadian consumption – which includes no imports and relies almost entirely on production from the western provinces, about 80% from Alberta – rose 12% to 238 Bcf. The pattern stayed consistent in December, when Canadian gas consumption of 282 Bcf was again 12% more than in the same month a year earlier. In both November and December 2002, prices fetched by gas sold for Canadian consumption reached the range of C$6-$7 (US$3.90-US$4.50) per gigajoule or about double depressed levels on flat markets a year earlier.

As in the U.S., there are questions about supplies. Canadian data suggests that the sales increases this heating season were primarily achieved by draining storage facilities rather than by increasing the productive capacity of gas fields. As of February, Canadian storage facilities were down to about 175 Bcf or 52% less than the network of underground sites held in the same month of 2002.

Storage was being depleted at an accelerating rate during the winter. The inventory on hand at the beginning of January, about 300 Bcf, was 33% less than the 450 Bcf in Canadian storage facilities a year earlier.

But by Natural Resources Canada’s count, productivity has shown some strength. In December, the industry analysts in Ottawa calculate that Canadian marketable gas production was 557 Bcf or 7% more than in the same month of 2001. Year-2002 Canadian production is estimated to have reached 6.096 Tcf, a 1% improvement on 2001.

On the supply side, the Canadian natural gas sector also passed a milestone — the first formal booking of coalbed methane as proven reserves. A Texas-based pioneer of the new production specialty north of the international border, Quicksilver Resources Inc. of Fort Worth, reported 366 Bcf of Alberta coalbed methane reserves in its 2002 year-end financial statements.

Operating in Canada through subsidiary MGV Energy Inc., Quicksilver said it emerged from an “asset rationalization” agreement to end a joint venture with former partner EnCana Corp. still holding more than 350,000 acres of resource properties in Alberta. Quicksilver said its Alberta coalbed methane project is producing more than 3 MMcf/d from 23 wells. The company has a US$41 million budget to expand the project this year, including participation in more than 210 wells. Quicksilver predicted the Canadian coalbed methane project will be its largest growth area.

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