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There's no mauling yet, but beware: Bears are eyeing the natural gas market.

Last winter, they hibernated as frigid weather in the United States and Canada drove up demand and drained gas inventories to levels not seen in years. The result was a price spike, and hefty gains in the stock market for long-suffering producers.

By April, the end of the industry's heating season, the thinking was: Oh-oh – it will be almost impossible for companies to refill underground facilities by the time the winter of 2014-15 rolls around. The stage was set more high prices.

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We're almost there. The thinking was wrong.

Now, it appears that the only thing that will fuel a repeat would be polar vortex 2.0. Otherwise, the gas industry has proved how resilient its massive shale-gas operations are when the chips are down. We've entered an era of just-in-time gas supply.

That's positive for consumers who faced higher utility bills last winter, and negative for energy companies now getting walloped by falling oil prices.

Let's reminisce. At the end of March, U.S. gas in storage was drained to more than 50 per cent below both the year-earlier and the five-year average volume, after demand surged in big markets such as New York and Chicago.

Prices were around 15 per cent above those at the same time the year before, after spiking into the double digits at times in Canada and the U.S. At one frigid point in February, gas at the AECO storage hub in southeastern Alberta sold for $40 a gigajoule, albeit in tiny amounts.

The most recent U.S. Energy Information Administration gas storage report showed how producers ramped up production. By the start of October, with a month to go before the heating season, the industry had plowed more than 2.4-trillion cubic feet into inventory to bring the total up to 3.2-trillion cubic feet, or just about 10 per cent under last year and the five-year average.

That fill-up is the equivalent of 170 days of all of Western Canada's production. The industry was aided in by a mild summer, which meant middling demand for air conditioning, and the absence Gulf of Mexico hurricanes to slash production.

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AECO gas for next-day delivery sold for $3.61 a gigajoule on Tuesday, according to the NGX electronic exchange. It's not a bloodbath for the current "shoulder season" in between summer and winter markets. In fact, it's 14 per cent above last year's price.

Still, there are a number of issues that point to a weaker gas market this winter, especially in Canada.

For one thing, even if there is another cold winter, market players may take their cue from the production response this year, which proved equal to the task of providing supplies when needed.

For another, two big U.S. Northeast shale plays are increasingly eating Canada's lunch. In five years, production from the Marcellus and Utica deposits has climbed from less that one-billion cubic feet a day to nearly 15 billion, and that supply is increasingly feeding the Northeast market and even Southern Ontario.

This bodes ill for the outlook for Canadian exports, FirstEnergy Capital Corp. analyst Martin King said in a presentation last week. He says Canadian gas faces a crisis in the American market as it gets backed out of the Northeast and Midwest markets – the ones to which the industry spent billions of dollars building pipelines – in the next three to four years as domestic production surges.

This adds urgency to the push to get Canadian supplies to the West Coast and on to international markets. Hence, the industry's pressure on the B.C. government to quickly formulate a fiscal regime that balances the potential rewards with the high costs of constructing expensive liquefied natural gas plants.

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It's not all doom and gloom for gas producers though. Mr. King points out that gas volumes in Western Canadian storage facilities will likely remain at multiyear lows well into next year. That should keep the spread between Alberta and New York mercantile exchange gas prices relatively narrow.

It's cold comfort, though, to Canadian energy companies whose shares have been hammered in response to the downdraft in world oil prices.

Unless it gets much more uncomfortably cold across North America in the coming months, don't expect the gas market to fuel a resurgent energy sector.

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