Analysis: Open capacity on North Montney Mainline allows producers to boost production

Denver — Extra capacity on the North Montney Mainline should allow Canadian producers to boost volumes this winter if needed and take advantage of some of the highest natural gas prices at the AECO hub recorded in several years.

The North Montney Mainline, which transports gas from upper British Columbia to downstream markets in Canada and the US, is currently running at 33% utilization. Data indicates the vast majority of these production volumes were rerouted from Westcoast Station 2, according to S&P Global Platts Analytics. This implies Westcoast Station 2 likely has 500 MMcf/d of open takeaway capacity. It also means the NOVA Gas Transmission system has at least 1 Bcf/d of open capacity to ramp up this winter demand surges from June levels.

This should allow Western Canada to handle production receipts of at least 15.9 Bcf/d this winter, well in excess of Platt Analytics' 15.55 Bcf/d forecast, providing producers room to ramp up production should they seek to take advantage of higher prices this winter.

The Canadian Energy Regulator began posting new data points this summer, including the Saturn point on NOVA's system. Based on filings for the North Montney Mainline, and the startup timing of flows for this data point, it is likely this is a header for the Mainline. Assuming this is the header for the North Montney Mainline, the quick ramp up of volumes is highly likely to be supply previously flowing to Enbridge's T-North system in British Columbia, and not new production.

This suggests the 500-600 MMcf/d flowing on the North Montney is mostly existing production, and based on the pipeline location, it is likely production being pulled away from Westcoast Station 2. This drop in supply to Enbridge's T-North system would explain why Station 2 has been trading so close to AECO this year, and also why Station 2 is expected to actually trade above AECO this winter, as the hub is expected to be considerably tighter on supply this winter than years past.

Platts Analytics expected the North Montney to be largely underutilized since its startup in January. This means there is currently 1 Bcf/d of open space for production on the NGTL system above what is currently flowing.

Platts Analytics expects AECO to be tight this winter. Producers, possibly eyeing what could be the strongest season for AECO prices in years, might make plans to increase production beyond current projections. If so, NOVA should have room to handle it, which would help loosen the AECO market this winter and keep a lid on AECO prices.