28-10-08 Canadian energy exports are expected to increase 36 % in 2008, before falling to a 9 % growth rate in 2009 largely on lower crude oil prices, Export Development Canada said in its Global Export Forecast.
The forecast said that despite a projected 3 % increase in Canadian crude export volumes next year, a "correction in oil prices will lead to a 15 % drop in oil export earnings, following a projected 47 % surge in 2008."

The EDC forecast calls for oil prices to average $ 84/barrel in 2009. The report said "while the oil market remains tight, the dollar and speculative investments have been dominating 2008 price movements."
The EDC said it believes "Eurozone interest rate tightening has run its course and that the dollar is likely to stabilize over the forecast period. Further, speculators' rapid flip into a net-short position and the accompanying $ 30 drop in prices is a clear indication that speculative support is needed if oil prices are again to approach peak levels."

Turning to fundamentals, the forecast said the outlook for oil is bearish, with the US Energy Information Administration predicting that non-OPEC supply will rise by 850,000 bpd in 2009 and OPEC surplus capacity will grow from 1.2 mm bpd to 2.7 mm bpd.
The EDC added, however, that oil price forecasts can change quickly on, for example, potential geopolitical shocks, and advised Canadian exports to "plan for volatility."

The forecast also predicted an average Henry Hub natural gas price of $ 9.20/mm Btu in 2008 and $ 8/mm Btu in 2009. While US natural gas stockpiles are below the year-ago level, they are in line with five-year seasonal norms.
"Still the price outlook is highly volatile, as it is heavily dependent on oil prices," EDC said.

The forecast added that US gas production is expected to outpace demand growth in 2009 and Canadian exports will rise in early 2009 with the expected start-up of the Canaport Liquefied Natural Gas terminal in New Brunswick.
"Absent Canaport, Canadian export volumes areexpected to fall in 2009 on still-low drilling activity, stable production and rising domestic gas use," the forecast said.
The EDC also said Canadian drillers, who have gone through "tough years" struggling with a strong Canadian dollar, high steel costs and additional cost pressures from Alberta's oil sands boom, "should finally get a break. Record steel prices are not expected to last and the dollar is expected to pull back. And even if the dollar does not see a correction, crude oil prices, and therefore natural gas prices, would be higher than currently forecasted."

In addition, the forecast said coal, which accounted for only 3 % of Canada's energy exports in 2007, will account for about 9 % of the expected 2008 overall growth in energy exports. EDC said coal exports should rise 80 % to 90 % in 2007 on "healthy volume growth and massive price gains."
While the forecast said the global economic slowdown should lead to softer coal demand in 2009, Canadian coal exports are expected to continue to grow on modest volume gains and slightly higher average annual prices.

The forecast also predicted that Canadian electricity exports will increase 12 % in 2009, boosted by the falling Canadian dollar and expected approval of higher electricity prices in the US.
EDC is Canada's export credit agency, offering financing, insurance and risk management to Canadian exporters.