Strong Alberta natural gas stocks add pressure to forward pricing

New York — With Alberta natural gas stocks filling up quickly, more supplies may be available in the US Pacific Northwest and Southwest later in the year.

Alberta inventories started the injection season at five-year minimum levels but strong injections so far are quickly closing the gap. Stock levels are now approaching the five-year average and if the storage build continues at current levels it is likely that injections will slow down by end of summer.

Stocks started the injection season more than 50 Bcf below the five-year average, S&P Global Platts Analytics data showed.

TC Alberta AECO-C and PG&E Malin cash basis flipped to premium as AECO continues to price higher to stimulate injections. Cash basis April to date averaged about 38 cents/MMBtu, significantly higher than the negative 87 cents/MMBtu observed during the same time in 2019.

Cash basis between the two hubs for June 18 flow date stood at 29 cents/MMBtu as Alberta stock levels approach their five-year average.

However, injections are showing no signs of slowing down with the balance-of-season contract for AECO gaining nearly 13 cents on June 18 to trade at 40 cents/MMBtu below US Henry Hub.

Production elevated

In addition to strong pricing, elevated production year to date is likely supporting the storage build. Output usually tends to fall off during June and July. However, total Alberta production averaged 11.7 Bcf/d June to date, 600 MMcf stronger than the three-year average during the same time.

Year-to date production levels remained relatively flat to the three-year average, Platts Analytics data showed.

With ample supplies in Canada by end of summer and end of maintenance along Gas Transmission Northwest-Kingsgate, an inlet for AECO gas into the PNW and Southwest, the US markets are likely to see a surge in Canadian exports.

The TC Alberta AECO winter strip shed 1 cent to trade 91 cents/MMBtu below Henry Hub while the same contract for PG&E Malin also ceded 1 cents to trade at 10 cents/MMBtu above the Louisiana benchmark on June 18.

AECO-C basis to PG&E Malin has narrowed to about negative 20 cents/MMBtu from negative 40 cents/MMBtu on May 1 for the July contract. The December contract basis tightened to negative 48 cents/MMBtu from 62 cents/MMBtu.