Cheap Canadian gas imports may prolong U.S. energy industry's rout

Thu Jun 9, 2016 12:05am EDT
 
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By Scott DiSavino

(Reuters) - U.S. utilities and merchants are embarking on their biggest buying spree for Canadian natural gas since the start of the U.S. shale boom, taking advantage of record low prices and raising concerns about the U.S. industry's deepening crisis.

Traders have been scooping up more gas from Canada, the world's fifth largest producer, in recent months after prices at the AECO hub in Alberta sank to a big discount to the U.S. benchmark.

With some analysts expecting the arbitrage to remain in place through the summer and traders having booked long-term pipeline deals, the shipments could last longer than previously expected, experts warn.

The deals will feed growing consumption from power generators after a record number of coal plants retired last year. In addition, gas demand is rising as the United States exports more gas to Mexico via pipeline and ramps up exports of liquefied natural gas to the world, traders said.

The scramble has also offered loss-making Canadian drillers a chance to continue pumping out product as domestic tanks continue to fill up and prices languish near record lows.

But market experts worry the surprisingly strong imports could prolong the U.S. market's biggest rout in a generation, adding to the ballooning glut after a warm winter left Canadian and U.S. storage facilities at record highs.

"We're still pulling too much supply out of the field," said Martin King, an analyst at Alberta energy advisory FirstEnergy Capital.

Now analysts expect Canadian imports to the United States to rise this year for the first time since 2007 when growing output from U.S. shale fields like the Marcellus in Pennsylvania started to displace Canadian fuel.   Continued...