CALGARY - The price of natural gas fell to its lowest level in more than seven years Thursday, continuing a trend that dealt blow after blow to Canada's energy sector.

However, it's too early to tell whether the lower prices will stay long enough to reduce home heating bills for consumers this winter.

The September contract for natural gas dropped 17 cents to just under US$2.95 per 1,000 cubic feet on the New York Mercantile Exchange, a drop of 5.5 per cent.

It's the lowest level since August, 2002.

For several months, natural gas has been trading well below the threshold at which producing it makes economic sense, which is normally between US$6 and US$8 per 1,000 cubic feet, depending on the region and type of reservoir.

Many natural gas producers in Western Canada have halted their activities as a result of the low prices, which means firms that provide drilling and other services have seen their business dry up.

"Where they have control over things, they're doing what they can as far as getting rid of assets they don't need, cutting down on overhead costs," said Roger Soucy, president of the Petroleum Services Association of Canada.

"A significant part of that is labour, so companies have reduced wages, introduced job sharing where appropriate, and ultimately have layoffs if they continue to not be able to put people to work."

There were about 63 per cent fewer rigs working across Canada this week than the same week of 2008, according to data on the Canadian Association of Oilwell Drilling Contractors' website.

The selloff in natural gas prices Thursday came after the U.S. Energy Information Administration reported that the country's stockpile of the fuel continues to grow, expanding last week by 52 billion cubic feet, or 19.1 per cent above the five-year average.

U.S. storage depots have been bloated for months with large amounts of unused natural gas because major industrial customers have cut back severely on energy use during the recession.

Power plants who use the fuel to fire their generators to produce electricity have reduced demand to meet falling need for power.

Declining demand as well as new supplies from emerging shale gas plays have led to a glut of the fuel across North America.

"It's going to be consumption that's going to cause things to turn around...How far they go up is going to be a function of how much consumption there is," said Soucy.

"And so for that you're going to have to look at what the weather's going to be like this winter, how quickly is the economy going to pick up so that we see more industrial commercial use for the gas that's fallen off since the recession."

Many Canadian natural gas producers have hedged their gas sales, entering contracts that give them higher future prices than the current spot price. But low spot prices persuade companies to cut drilling for new supplies and dampen the industry's outlook.

For consumers, lower spot prices could lead to reduced heating bills this winter, but that depends on how cold the weather is and the price that gas distributors such as Enbridge (TSX:ENB) and Quebec's Gaz-Metro (TSX:GZM.UN) have paid for the fuel.

In trading on the TSX on Thursday, shares of major gas producer EnCana Corp. (TSX:ECA) fell 53 cents to $56.31, a drop of just under one per cent

Meanwhile, units of Enerplus Resources Fund (TSX:ERF.UN), which late Wednesday said it had spent $406 million on U.S. shale gas properties in Pennsylvania, fell 85 cents to $21.84, a drop of nearly 3.8 per cent.

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