Recent low NYMEX prices and the surging Canadian dollar have created buying opportunities for Aeco gas. The Canadian dollar, which was trading at 81.7 cents on April 28th, has surged to 89.9 at the time of writing this report.

 The 1-year terms starting November 2010 and November 2011 show great value in the $6.50 to $6.75 range (Canadian per GJ at Aeco).

The volatility of the Canadian/U.S. dollar exchange rate has been fairly dramatic over the last few years. In general, as the Canadian dollar strengthens versus the U.S. dollar, term prices at Aeco are less expensive. A good rule of thumb is that every cent increase in the Canadian dollar reduces the Aeco term price by 8.5 cents (Canadian per GJ). 
 
Other commodities and indexes are also showing a great amount of volatility this year. Crude oil (WTI) is up 40% this year, Brent is up 66%, Gasoline is up 81%, the U.S. dollar is down 9%, the TSX is up 14% and the Dow Jones is down 3%.

The U.S. rotary rig count as reported by Baker Hughes continues to decline, which will impact production later on this year. The rig count sits at 711 as of May 22nd. It was 1,606 in September of last year. As you would expect, less rigs drilling for natural gas will lead to less connected wells in the future, which will lead to reduced supply. The market has not seen this reduction in supply yet.

Data just released from the EIA (Energy Information Administration) showed a 106 Bcf storage build this week. U.S based storage levels are at 2.213 Tcf, which is 524 Bcf (31%) above last year and 393 Bcf (21%) above the 5-year average. The market expects that storage will be very full at the end of summer and this might bring down prompt month prices, and prices this coming winter. As such, there is no rush for short term hedges. However, longer term prices are likely to increase as the economy turns and production reduces as a result of the lower rig count noted above.

 If you have any questions on the data above, please feel free to call your Client Services Representative or Dave Duggan.

 The Darlington nuclear plant is back in service, after the extended outage for the vacuum building maintenance.  So far, 3 of the 4 units are up and running, bringing back about 2,500 MW of baseload generation to Ontario.  Demand is still quite low, as the recession has reduced industrial demand and no hot weather has come along to drive prices higher.

Ontario Power Generation announced recently that the tunnel under the City of Niagara Falls will take a lot longer to complete and cost a lot more than originally expected.  The latest estimate is that the final cost will be $1.6 billion (up from $985 million) and the completion date will be sometime in 2013 (was originally 2009).  A dispute review board ruled that the cost overrun should be covered by OPG, not the contractor that is digging the tunnel.

This week, the IESO released their latest 18 Month Outlook for the power system in Ontario.  The gist of the report is that there is a fair amount of new generation coming online in the next year and a half, and that demand will likely remain low, due to the economic downturn and conservation efforts.  Some of the new generation from the Bruce nuclear plant may be constrained by transmission bottlenecks, until new lines are built.