Energy Evolution: February 16, 2009
Canadian Gas Exports, LNG Imports To U.S. Decrease
Blamed on increased supply, more-than-enough storage as well as weaker industrial demand, Canadian conventional and international liquefied natural gas (LNG) imports into the United States for the 11 and 12 months respectively in 2008 were down sharply compared to the previous year.
Fueled by declines for seven consecutive months, the National Energy Board (NEB) figures show Canadian gas exports to the U.S. at just over 3.31 tcf for the 11 months through November 2008 were down from 3.42 tcf in the previous year. In all of 2007, Canadian exports at just under 3.79 tcf showed only a marginal gain compared to the 3.52 tcf a year earlier.
Meanwhile, the Office of Fossil Energy (OFE) in the U.S. reported annual imports of LNG into that market plummeted to 351.7 bcf in 2008 from 770.8 bcf in the previous year, reversing what had been yearly rising volume since 1995.
The NEB’s most recent examination of energy market activity indicated the North American gas market continued to be well supplied through January and into February this year, despite entering the latter stages of the winter heating season.
“The ample supply position relative to demand allowed North American natural gas futures prices to continue falling,” the NEB analysis said.
“The natural gas market is currently characterized by steady production, high North American natural gas storage inventories, low prices for competing oil products and reduced industrial demand,” noted the NEB.
The NEB also pointed out the downward pressure on market prices created by these factors occurred despite “strong space heating demand related to extended periods of cold weather in high consumption market areas of Central Canada, around the Great Lakes and in the Northeast United States.”
According to the NEB, the lower-than-expected storage withdrawals during a period of high weather-related space heating requirements “reflected the declining demand from the industrial sector as a result of the global economic downturn.”
The latest Short-Term Outlook by the Energy Information (EIA) in the U.S. supported the declining demand factors outlined in the NEB analysis.
“Total natural gas consumption (in the U.S.) is projected to decline by 1.3% in 2009 and then increase by 0.6% in 2010,” the EIA said.
“The expectation of limited weather-driven consumption growth in the residential and commercial sectors in 2009 is outweighed by the implications of continued economic weakness in the industrial and electric power sectors,” the EIA said.
The EIA estimated consumption in the U.S. industrial and electric power sectors is expected to decline by 5.1% and one per cent respectively in 2009, while demand “growth in 2010 remains largely dependent upon the timing and pace of economic recovery,” the EIA said.
Based upon its current assumptions, the EIA estimated 2.2% growth in the electric power sector combined with slight gains in the residential and industrial sectors are all expected to contribute to 2010 consumption growth.
Pointing out storage withdrawals are an important element in meeting winter demand requirements in North America, the NEB analysis said inventories are exceeding the five-year average and less has been taken than expected despite the cold conditions in those key markets.
The NEB also said the weakened market prices for gas would affect plans to drill for more supply in North America.
The analysis suggested reduced drilling, which has already occurred, “is not an immediate cause for concern, but it may eventually manifest in reducing available supply and then lead to some upward pressure on price as demand recovers.”
As for North American imports of LNG, the NEB analysis said relatively small volumes were brought into the U.S. during 2008 because global demand elsewhere provided more attractive prices to suppliers.
“For 2009, it is expected that global LNG supply will increase, while demand falls as a result of the global economic downturn,” the NEB analysis said. “As a result, a moderate increase in LNG imports into North America in 2009 can be expected.”
The NEB also noted that despite some curtailment in development activity, “North America added significantly to its LNG import infrastructure, creating an opportunity for larger imports.”
NEB statistics for November 2008 showed exports to the U.S. at 292 bcf were down from 309.1 bcf in the previous year.
But, on the strength of average prices that were still higher than in November 2007, revenues climbed to $2.31 billion and were up by seven per cent compared to $2.15 billion in the previous year.
For the 11 months last year, export revenues were $30.43 billion, almost $5 billion higher than the just under $25.08 billion in 2007.
Export prices averaged $8.57 per gigajoule in the 11-month period of 2008 compared to $6.81 in the previous year.
Translated into U.S. currency, prices for Canadian gas exports averaged $8.82 and $6.75 per mmBtu for 2008 and 2007 respectively for the 11 months. But, the November 2008 average at $6.45 (U.S.) per mmBtu was down from $7.17 in the previous year.
Regionally, shipments to the U.S. Northeast, the second biggest market for Canadian supply, at 90.1 bcf in November 2008 were actually up from 86.4 bcf a year earlier, but the just under 1.06 tcf for the 11 months were down from 1.17 tcf in 2007.
Exports to the U.S. Midwest, the biggest market for Canadian supply, were 130.7 bcf in November 2008 and put the 11-month total at just under 1.30 tcf, both down from 139.8 bcf and about 1.4 tcf in the respective periods last year.