ANALYSIS: Pacific Northwest forward gas prices to face late-summer pressure as W. Canada storage mounts

Denver — The US Pacific Northwest could see significantly weaker gas prices than currently expected for next autumn as supply pressure from Western Canada mounts amid rapidly rising inventory levels there.

At the Northwest Canadian border hub Sumas, forwards markets are currently pricing in considerable strengthening from current levels around $1.50/MMBtu to over $2 by October and the low $3s by November.

Those forward valuations could come under significant pressure by later this summer, though, as Western Canadian storage levels approach tank top, driving more supply southbound to export markets in the PNW and beyond.

Over the past 30 days, storage injections on Alberta's Nova Gas Transmission system have averaged nearly 1.5 Bcf/d, outpacing the five-year average build of 695 MMcf/d by over two fold, S&P Global Platts Analytics data shows.

Abnormally high injection demand comes after TransCanada announced a Temporary Service Protocol effective April 1, incentivizing shippers to store regional production in an effort balance Western Canada's chronically oversupplied market.

As a result, gas inventories are now rapidly filling, rising to an estimated 357 Bcf on June 10. Regional storage is now over 50 Bcf above year-ago levels and has narrowed its deficit to the five-year average to just 32 Bcf – down from a nearly 90 Bcf shortfall at the start of the injection season.

According to a forecast from Platts Analytics, western Canadian inventories are on course to finish the injection season at 624 Bcf, actually exceeding the region's nameplate storage capacity of 580 Bcf.

SUPPLY, EXPORTS

Rising inventories in Alberta and British Columbia come in the context of strong production and historically low exports.

Over the past month, Western Canadian gas production has averaged nearly 15.1 Bcf/d, outpacing its year-ago level by more than 100 MMcf/d. At the same time, exports are also lower this year. In June, gas transmissions to Eastern Canada, the US Midwest and the US Pacific Northwest are averaging net 7.3 Bcf/d, down from volumes that averaged over 8.6 Bcf/d in first-half June 2019, Platts Analytics data shows.

As storage inventories in Western Canada's well-supplied market begin to fill by late summer, more of the region's production is likely to find its way southbound, into the US Pacific Northwest.

A recent forecast from Platts Analytics shows exports to the PNW rising from their current level at 2.8 Bcf/d to around 3.6 Bcf/d by September and 3.7 Bcf/d by October – potentially the highest export volumes on record for the two shoulder-season months.

MAINTENANCE

One potentially significant mitigating factor on Western Canadian exports this summer is a cross-border capacity limitation imposed by extended maintenance on Gas Transmission Northwest – one of two key transmission corridors into the US Pacific Northwest.

Over the balance of June and through mid-September, available capacity on GTN will fluctuate from a low at 2.31 Bcf/d to a high at 2.59 Bcf/d, according to a recent critical notice published by the operator.

In June, flow through GTN's cross-border hub at Kingsgate have averaged 2.15 Bcf/d – potentially implying as little as 160 MMcf/d in spare capacity remaining on the pipe during the height of this summer's maintenance restrictions.