GTN pipeline maintenance ending, looks to boost Canadian natural gas exports

Denver — The lifting of a maintenance next week at the Kingsgate hub could increase Canadian natural gas exports to the US Pacific Northwest, but additional hurdles remain, setting up a bullish scenario for pricing downstream at PG&E city-gate.

Despite incremental operational capacity through Kingsgate expected to return to service on Oct. 6, barring additional delays, on top of a favorable AECO to Malin spread, utilization of available throughput capacity may not increase amid downstream constraints, according to S&P Global Platts Analytics.

According to postings by Gas Transmission Northwest, the flow past Kingsgate location capacity will remain limited to approximately 2.37 Bcf/d through Oct. 5 as ongoing maintenance at the Eastport Station 3 and Athol Station 5 continues. After which, capacity will increase by 190 MMcf/d to 2.56 Bcf/d for the bulk of October.

Although the favorable AECO to Malin spread would incentivize incremental Western Canadian exports to the Pacific Northwest and Malin markets, downstream maintenances and softer demand may limit a ramp up, according to Platts Analytics.

Pacific Gas and Electric will commence maintenance on its Redwood Path along the L400 pipeline Oct. 4 through Oct. 27, with operating capacity estimated to average 1.68 Bcf/d during the outage. This would be approximately 520 MMcf/d below maximum available capacity with the most severe constraints limiting capacity to as low as 1.45 Bcf/d.

With capacity restrictions estimated to average about 25% of maximum available capacity during the maintenance, how much supply is capable of being received at the Redwood Path via GTN pipeline should similarly shrink despite maintenances along GTN ending.

Interconnecting flows from GTN onto PG&E's Redwood Path have averaged 1.36 Bcf/d month to date, a year-over-year increase of approximately 175 MMcf/d. However, with GTN receipts rarely exceeding 1.7 Bcf/d in the past five years in addition to upcoming PG&E maintenances, any incremental receipts from GTN onto Redwood Path would need to squeeze out Rockies supply via Ruby Pipeline, which has averaged 552 MMcf/d this month.

Also, US Pacific Northwest demand is expected to weaken through the first half of October amid mild temperatures. Temperatures through the first half of October are forecast to average 64 degrees Fahrenheit, roughly 2 degrees cooler than the prior 30-day average, lowering demand with it.

Total Pacific Northwest demand is forecast to average 1.7 Bcf/d, approximately 100 MMcf/d weaker than observed in September, likely softening gas prices and need for additional Western Canadian supply once Kingsgate capacity increases, fueling risks of underutilization, according to Platts Analytics.

Once maintenances along GTN and PG&E have concluded, incremental Western Canadian supply could squeeze out Ruby supply at the Redwood Path interconnect, assuming the spread between AECO to Malin incentivizes it. In the meantime, October may bring bearish sentiment to the US Pacific Northwest driven by limited downstream outlets, while PG&E could face bullish sentiment as restricted capacity through Redwood Path may force the operator to dip into storage inventories to balance out, posing further upside risk to winter strip pricing.

As another heatwave is set to hit California, PG&E's on-system cooling demand looks to rise, eating into storage inventories as the market enters the final weeks of the summer season. California temperatures have averaged 77 degrees since Sept. 28, approximately 8 degrees above normal temperatures, slightly cooler than previous heatwaves observed in mid-August and early-September. The heat has boosted PG&E's on-system demand to an average of 2.26 Bcf/d, approximately 510 MMcf/d stronger than the prior 10-day average.

As a result, withdrawals from PG&E's storage fields have increased. PG&E has averaged a net withdrawal rate of approximately 169 MMcf/d for the week-ended Oct. 2, a net change of 685 MMcf/d from last week's net injection rate of 516 MMcf/d, according to Platts Analytics.

Although observed gains at PG&E city-gate have remain relatively muted despite incremental demand, raising basis versus Henry Hub 11 cents since Sept. 28, up to $2.21/MMBtu, upcoming maintenance along PG&E Redwood Path through the bulk of October should paint a bullish picture for end-of-summer pricing assuming supply curtailments are materialized.