North American Production Even

With the supply of Natgas in the US increasing for the week, the bears are yelping. But in Canada, the supply decreased by more than the increase in the US. The net result for the integrated market was near zero. The low prices of natgas are having a dramatic impact on production----in Canada. But the US and Canadian markets are one market. WIth the large pipelines from Canada, the production in Canada can be sold in New York City. But Canadian production is both important (large) and decreasing. The real story is the shift of production from Canada to the US Shale plays.

If price continues at the current level, the production of conventional natgas in Canada will continue to fall. Right now the impact of the fall is being moderated by the large storage overhang in both the US and Canada. When the Canadian storage overhang is eaten through, the full impact of the lower production will be felt. The bears may face a severe shock at the magnitude of the problem.