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Force majeure on Gas Transmission Northwest to limit West Canadian gas inflows into PNW

Highlights

Flow Past Kingsgate limited to 1.79 Bcf/d

GTN, Kingsgate's discount widens more than 30 cents

Strong BPA hydropower generation could soften impact

  • Author
  • Kelsey Hallahan
  • Editor
  • Richard Rubin
  • Commodity
  • Electric Power Energy Transition Natural Gas

An unplanned outage on Gas Transmission Northwest pipeline system will restrict flows past Kingsgate for the foreseeable future, the pipeline operator said, limiting inflows of Western Canadian natural gas into the Pacific Northwest and expanding cash GTN, Kingsgate's discount to cash Henry Hub.

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Gas Transmission Northwest declared a force majeure event late in the afternoon of May 16, after the daily trading session closed. The pipeline experienced an unexpected compressor station failure at Station 3 near the US-Canadian border, according to a critical notice posted that day.

Flows past Kingsgate will be limited to 1.79 Bcf/d effective May 17 until further notice, down from a full operational capacity of around 2.65-2.7 Bcf/d. Kingsgate is one of two main routes for gas to flow south into the Pacific Northwest from Western Canada.

Pricing impact

GTN, Kingsgate spot gas saw its discount to cash Henry Hub flare out to $1.86 in May 17 trading, preliminary settlement data from Platts shows. GTN, Kingsgate fell 6.50 cents to $6.36/MMBtu at preliminary settlement, while many other regional spot gas prices saw gains of 20-35 cents.

The constraint limiting gas export capacity to the US was reflected in other Canadian spot gas prices. Cash Westcoast Station 2 also saw its spread to cash Henry Hub widen, trading down 29 Canadian cents at C $6.82/GJ on the Intercontinental Exchange as of the afternoon on May 17.

The Kingsgate flow restrictions also helped boost California and Southwest spot gas prices, which saw 35-65 cent increases upon May 17 preliminary settlement. Pipeline nomination data shows that gas deliveries to the Pacific Gas & Electric system from Gas Transmission Northwest dropped 165 MMcf on May 17, increasing California's reliance on inflows from the Rockies and Permian Basin.

Prior to the unplanned outage, Gas Transmissions Northwest had scheduled maintenance work for most of May that was set to limit flows past Kingsgate to 2.12 Bcf/d for May 7-28. The constraint helped widen GTN, Kingsgate's spread to cash Henry Hub to average $1.43 discount so far this May, double the 71-cent discount averaged in April.

Outlook

The pricing impact of the Kingsgate flow restrictions could be partially softened by stronger hydropower generation in the Pacific Northwest, although forecast colder temperatures could boost residential-commercial demand.

Hydropower generation in the Bonneville Power Administration footprint has risen substantially recently, averaging 195 GW/d over the last seven days (May 10-16), up from 144 GW/d during the prior seven days (May 3-9). Month-to-date hydro generation has averaged 180 GW/d, up from 164 GW/d during the same time in 2021. Stronger BPA hydropower generation allows for increased power exports from the Pacific Northwest to California, which helps ease the state's gas-fired power generation demand.

The National Weather Service forecast below-normal temperatures for Washington, Idaho, and Montana in its six- to 10-day outlook, with the colder weather spreading south to include Oregon in the eight- to 14-day outlook.