Canadian natural gas exporters are firmly on track — downhill — toward a second straight year of decline in annual sales, according to trade records kept by the National Energy Board (NEB).
Pipeline deliveries to the United States fell by 6% to 1.681 Tcf in the six months ended April 30 from 1.787 Tcf in the comparable first half of the 2008-2009 contract year.
The value of the trade also continued to erode. The average price fetched at the international boundary by Canadian gas dropped by 4% to US$5.11/MMBtu in the first half of 2009-2010 from US$5.32/MMBtu a year earlier.
The combination of slipping volumes and soft prices cut Canadian gas exporters’ first-half 2009-2010 revenues by nearly 10% to US$8.66 billion from US$9.58 billion during the same period of 2008-2009.
Unfavorable currency trends worsened financial effects of the weakness in the commodity. Increases in the value of the Canadian dollar toward par with its U.S. counterpart amplified the first-half drop in loonies received for gas exports to 19%, down to C$4.97 per gigajoule (GJ) in the six months ended April 30 from C$6.12/GJ during the same period of 2008-2009. Exporters’ revenues, as measured in their own country’s currency, dropped by 24% to C$9 billion for first-half 2009-2010 from C$11.8 billion a year earlier.
From the Canadian perspective, the only bright spot in the current gas trade is that its rate of shrinkage has slowed since its 2008-2009 setbacks brought a dramatic end to an unbroken, 20-year string of annual growth.
In the 2008-2009 contract year ended Oct. 31, pipeline deliveries to the U.S. fell by 10.7% to 3 Tcf. The annual average price at the border plunged by 49% to US$4.42/MMBtu. Export revenues plummeted by 54% to US$14.7 billion.
The Canadian gas industry is braced for a long lean spell, according to a survey of producer and investment leaders by Canaccord Genuity. “There was more conviction on oil prices moving higher than gas prices,” the financial house reported.
“The group expects a relatively high oil-to-gas price ratio of 15:1.” That is, the Canadian industry sees natural gas as likely to remain stuck at about 40% of oil’s value no matter how high it goes, when the two fuels are compared by energy content. At parity, 6 MMBtu of gas equals 1 bbl of oil.
The contrast in values is driving a course change in Canadian industry activity. Drilling is up by about 50% this year over 2009 to a projected 11,500 wells for 2010. But oil is the target for more than half the action for the first time in memory and accounts for almost all the increase except in fledgling Canadian shale gas developments.
Previously, gas drove about three-quarters of Canadian drilling since the mid-1980s. Exports are a cornerstone of the Canadian gas industry, with about 60% of its production flowing to the U.S. in its healthy years.
But Canadian industry analysts are echoing their U.S. peers in suggesting that the worst is over. FirstEnergy Capital Corp., which makes a specialty of tracking gas, describes it as “squarely in the middle lane of the slow road to recovery.”
In a research note the Calgary financial house predicts “steady and gradual price recovery” through the summer and early fall. “The choking grip of fear that has held this market in its grasp since the start of the year is slowly starting to ease off.”
FirstEnergy predicts prices will average US$5/MMBtu this year and US$5.75/MMBtu in 2011, with supply growth slowing while North American demand grows by about 3 Bcf/d in 2010 and 1.3 Bcf/d next year. Along with economic recovery, environmental preferences for the cleanest-burning fossil fuel are starting to show effects including the beginning of a potential years-long trend of switching to gas from coal in the power generation sector, the Calgary investment house says.
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