NGTL pipeline capacity restrictions extend to mid-December, likely widening price spreads

TC Energy has extended capacity restrictions on NGTL pipeline deeper into December than expected, likely widening the spread between AECO and Chicago prices as the Canadian hub continues to weaken.

NGTL has extended its capacity restriction in the Upstream James River to Dec. 11. It was originally scheduled to end on Dec. 1. Capacity was to go from 11.34 Bcf/d on Nov. 30 to 11.65 Bcf/d on Dec. 1, but now capacity will only jump to 11.4 Bcf/d through Dec. 11, when it will jump to the originally scheduled 11.65 Bcf/d. The current 11.4 Bcf/d is the highest USJR capacity has been since last April, and the highest since this summer's production surge began, according to S&P Global Platts Analytics.

AECO cash prices in the second half of November had been trading at a wide USD$1.33/MMBtu discount to Chicago. However, the December 2021 AECO futures contract had been trading at just a $1/MMBtu discount to Chicago. This suggests the market was anticipating the increased capacity would help narrow AECO's spread to the downstream Chicago.

This now appears unlikely as capacity is reduced to 11.4 Bcf/d. Outright cash prices are looking bleaker too. For most of the fall through November, even with wide differentials, AECO has been experiencing average cash prices a $4/MMBtu. However, as warm weather continues across North America amidst strong US production, Henry's cash and winter strip pricing has been sliding in recent days. AECO could start to see weak outright prices again if these wide differentials continue.

Total Western Canada production has averaged 16.5 Bcf/d during November and December month to date, according to Platts Analytics, which is 1 Bcf/d more than this time last year.

NGTL has not yet posted November's heat content data. However, data on the downstream Great Lakes suggests NGTL's ethane levels have decreased in response to resolutions to operating issues in Western Canada's NGL sector, ethane content may still be elevated compared to historical levels, according to Platts Analytics.

Gas quality data on the downstream Great Lakes pipeline, which consists entirely of NGTL volumes, shows ethane volumes returned to levels more in line with historical norms in mid-October. Since Oct. 15, Great Lakes ethane levels at the Emerson import point averaged 72 MMcf/d, or 4.86% of total molecules on the pipe. This is well below the 88 MMcf/d that was averaged for 5.35% of the pipe from Aug. 1 to Oct. 14 when the NGL sector was having pipeline outages and fire issues.

However, it remains higher than the 53 MMcf/d for 4% of total volumes that was averaged the year leading up to Aug. 1, 2021. Great Lakes ethane levels do correlate to NGTL levels historically. While these increased ethane levels on Great Lakes would suggest ethane levels on NGTL are elevated as well, it is not a certainty, according to Platts Analytics. Increased ethane levels on NGTL could add to constraint concerns this winter and widen AECO's differential to Chicago even further.