Canadian gas storage volumes fall to 60% of 10-year average as builds begin

Canadian gas storage fields are flipping to daily additions, but inventories are entering the injection season 40% below the 10-year average, as AECO spot hits a daily high eclipsed only twice in the past five years.

Western Canada's inventories stood at 192 Bcf as of April 6, according to data by S&P Global Commodity Insights. This pales in comparison to the 10-year average of 318 Bcf as storage systems traditionally transition from winter withdrawals to summer injections.

Western Canadian storage fields posted the first daily injection of the year on April 4, which is roughly in line with historical norms. Storage volumes have increased by about 250 MMcf/d through April 6.

Western Canadian storage faces a steep road to climb to reach the 470 Bcf typically in the ground by the end of October when high demand of the heating season begins.

The AECO cash price has continued to test highs, rising 24 cents on the day to $5.04/MMBtu for April 6 flows, according to S&P Global.

Spot prices have only reached higher levels two other times in the past five years and have never maintained the strength that the market is experiencing this year. Despite the historic strength, AECO still trails the US benchmark Henry Hub by 92 cents/MMBtu.

The Dawn hub at $5.89/MMBtu in Eastern Canada is much closer to Henry, trailing it by 7 cents. Eastern Canada storage volumes totaled 48 Bcf, which is slightly more than half the five-year average of 87 Bcf.

AECO's winter 2022-2023 strip is also trading at significant discounts to Henry Hub, suggesting the market expects constraint driven weakness at the benchmark Alberta gas hub. However, despite projects of strong growth this coming winter over last, NGTL's outage schedule has S&P Global expecting a mostly unconstrained winter.

NGTL currently only has November 2023's capacity figures posted, but they indicate large increases from winter 2021-22. Upstream James River November 2022 capacity is scheduled to average 12.4 Bcf/d, up from 11.2 Bcf/d a year ago. Likewise, the East Gate is scheduled to average 5.4 Bcf/d of capacity in November 2022, up from 4.6 Bcf/d in November 2021.

There remains the likelihood that more restrictions will be announced, and these project capacity figures will be reduced by a few hundred MMcf/d, as was the case at the outset of winter 2021-22.

Still, S&P Global expects its strong production forecast of 800 MMcf/d of November-over-November growth will have enough room to flow on the NGTL system without overstraining the system. This would likely translate to AECO trading much tighter to Henry Hub and Chicago than futures currently anticipate.