US Pacific Northwest spot gas prices could fall next week as region warms

Normal to above-normal temperatures expected for the Pacific Northwest could deflate regional spot gas prices after wintry weather pushed regional temperatures below normal over the last two weeks.

The National Weather Service's six- to 10-day forecast shows a likelihood of above-average temperatures across the western half of the country Jan. 12-16, with a small pocket of near-normal temperatures in parts of Oregon, Idaho, and Nevada.

The average temperature in the Pacific Northwest was forecast to remain above freezing over the next two weeks, with most days in the high 30s Fahrenheit and low 40s F, data from S&P Global Platts Analytics and CustomWeather shows.

Regional spot gas prices were already moving lower in Jan. 7 trading.

Stanfield, Oregon, fell 17 cents to trade at $4.64/MMBtu, while Northwest, Canadian border (Sumas) fell 14 cents to $4.78/MMBtu, according to Platts preliminary settlement prices.

The forecast temperature ranges would mark a shift from the last two weeks when the average temperature dropped below freezing for eight of the last 14 days.

This stretch of very cold temperatures pushed PNW gas demand to average 3.13 Bcf/d for the first seven days of January, up around 900 MMcf/d, or 40%, higher than the same time last year, according to Platts Analytics.

Strong hydro, weak power prices

With cold temperatures pushing heating demand up over the last two weeks, regional spot gas prices remained in elevated ranges. GTN, Stanfield averaged $6.12/MMBtu for Dec. 25-Jan. 6, up from $4.37/MMBtu during the first two weeks of December.

Regional power prices have gone the opposite direction, falling over the last two weeks from a Dec. 26 peak as hydropower generation increased to meet elevated power loads.

Mid-Columbia day-ahead on-peak began to fall in Dec. 27 trading, down nearly $25 to price near $100/MWh. Over the course of that week, Mid-C plunged to the mid-$50s/MWh before sliding to the mid-$30s/MWh the week of Jan. 3, its lowest level since early December.

Hydroelectric generation has ramped up substantially in the Bonneville Power Administration footprint over the last two weeks, with the most recent generation data available showing that hydropower generation averaged 271 GWh/d for Dec. 27-Jan. 4, 32 GWh/d, or 13%, higher than Dec. 20-26.

Robust hydropower generation performance can be partly attributed to recent "heavy precipitation and a generous snowpack in mountainous areas," according to the US Drought Monitor in a Jan. 4 update. The percentage of the West experiencing extreme drought has continued to slide, to 25.3% as of Jan. 4 from 33.7% last week and 58.8% three months prior.

Inflows from Western Canada

The possibility of higher inflows of gas from Western Canada could also weigh down PNW spot gas prices, as forecast warmer weather across the border next week looks likely to weaken domestic gas demand in Canada and make more gas available for export.

Like the PNW, Canada has seen a wave of extremely cold temperatures recently that spiked in-country gas demand. Canadian provinces British Columbia, Alberta, Manitoba, and Saskatchewan have all seen consistently above-normal demand over the last two weeks, data from Platts Analytics shows.

Total gas demand in Canada averaged around 16.2 Bcf/d for Dec. 25-Jan. 7, up around 2.6 Bcf/d, or 19%, from a three-year average for those dates.

The strong domestic demand could have slowed outflows to the Pacific Northwest, with pipeline nomination data showing that total flows through Kingsgate and Sumas averaged 3.7 Bcf/d over the last two weeks, down around 50 MMcf/d from the previous two weeks.

Forecasts from the government of Canada show temperatures rising through the weekend, with temperatures in Prince George, British Columbia rising to a high of minus 1 degrees Celsius and low of minus 3 C Jan. 10 from a high of minus 22 C and low of minus 25 C Jan. 7.

Turning to Alberta, Calgary was forecast to see temperatures rise out of the negative by Jan. 10, with a high of 15 C and a low of 5 C, from a high of minus 22 C and a low of minus 25 C Jan. 7.

Outlook

With warmer weather forecasts for both the PNW and Western Canada over the next seven days, regional supply and demand balances are likely to loosen, which could bring spot gas prices lower in the near term.

As of 1 pm ET (1800 GMT) Jan. 7, Sumas' balance-of-the-month contract was trading 19 cents lower at $5.64/MMBtu on the Intercontinental Exchange.