For the first time since a marathon success streak began with the advent of the “continental market” in the mid-1980s, Canadian natural gas exporters have weathered a setback in the United States. On the heels of posting the 14th consecutive record year for the trade in 2001, new data showed Canadian sales, prices and revenues all took dives, as export deliveries ran afoul of a warm winter, a slowing economy, fuel-switching and surplus supplies in storage.

During the first quarter of the current gas contract year — Nov. 1, 2001, to Jan. 31, 2002 — records kept by the National Energy Board show gas export volumes dipped by 12.2%, prices fell by 62%, and revenue dropped by 66.4%. Canadian deliveries to the U.S. were 926.4 Bcf in the opening three months of the 2001-02 contract compared to 1.05 Tcf in the same period of 2000-01. The average export price slipped to US$2.70 per MMBtu from $7.11. Quarterly revenues slumped to US$2.53 billion from $7.53 billion.

The setback is widely expected to be a blip rather than the start of a trend, with forecasters such as FirstEnergy Capital Corp. in Calgary predicting the market will turn around. Projections of prices, especially, have been raised on expectations that a reviving U.S. economy will increase energy demand, while an end is in sight to fuel-switching brought on by the 2000-01 spike in gas and power markets. FirstEnergy, the latest Canadian forecaster to generate a revised outlook based on trends believed to be developing since mid-March, raised its prediction of 2003 average gas prices to US$3 per MMBtu from $2.80.

Industry veterans also observed privately that Canadian gas exporters had reached a peak beyond their wildest imagination when the sustained growth trend began in the 1980s from a starting point of U.S. sales of about 800 Bcf per year. Both Canada’s National Energy Board and the U.S. Department of Energy’s Office of Fossil Energy chalked up 2001 as the 14th consecutive annual record for Canadian gas exports, with sales in the range of 3.7 Tcf fetching about US$16 billion. The U.S. agency reports the trade on a calendar-year basis, while the NEB tracks the traditional Nov. 1-Oct. 31 contract term, but the results of their surveys differ only in details.

In the lean first quarter of the current gas contract year, only one U.S. destination for Canadian production showed growth. Deliveries to the Pacific Northwest region rose by 71.7% to 244.5 Bcf from 142.4 Bcf during the November-January period of the 2000-01 contract. The region also registered the sharpest drop in prices: by 69.2% to US$2.69/MMBtu from $8.75.

In California, first-quarter 2001-02 Canadian gas sales fell by 24.5% to 129.1 Bcf from 171 Bcf in the same period of 2000-01, while average prices dove by 66.1% to US$2.47 per MMBtu from $7.28. In the middle-western U.S., sales fell 30.6% to 278.3 Bcf from 401.2 Bcf and prices lost 62.3% to US$2.55 from $6.76. In the northeastern states, Canadian gas sales retreated by 19.3% to 271 Bcf from 335 Bcf and prices declined by 55.8% to US$2.99 from $6.77.

Canadian producers plainly agreed with industry analysts that the setbacks were temporary, and looked worse than they were as a result of comparisons with the astronomical market peak hit in the winter of 2000-01. Despite eroded revenues, western Canadian drilling for gas continued almost uninterrupted in the first quarter of calendar 2002. Gas well completions rose to 2,214 from 2,201, with exploration barely pausing while development drilling of known pools jumped to 1,719 completions from 1,416. There was also no sign of retreat from exploration on the western Canadian gas sector’s frontier in the Northwest Territories. Paying calls on the industry capital of Calgary, territorial Resources Minister Jim Antoine said preliminary seismic surveys as well as previously committed drilling continue on the Mackenzie Delta and at the southern end of his jurisdiction in the Fort Liard gas hunting ground.

Antoine said holders of northern drilling rights have assured the territorial government they are taking a longer view than quarterly sales movements in reviving northern activity. The same goes for his government. Rather than be influenced by short movements of the international gas trade, Antoine said he and territorial Premier Stephen Kakfwi will shortly present the federal government with a request for C$230 million (US$145 million) for “infrastructure” such as road and sewage-treatment improvements to accommodate increasing northern industrial activity.

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