Sumas spot gas drops to three-month low on higher inflow capacity

Northwest, Canadian border (Sumas) spot natural gas benchmark dropped more than $1 in June 27 trading for next-day flows, ahead of increased flow capacity upstream on Westcoast Energy's BC Pipeline that will allow for more gas to flow south toward the Pacific Northwest.

By mid-afternoon trading on the Intercontinental Exchange June 27, Sumas slid $1.08 to trade at $4.53/MMBtu, which, if it holds to final settlement, will be the location's lowest price since late March.

Expectations of more gas being able to make its way into the PNW from Canada also put pressure on Gas Transmission Northwest, Kingsgate spot gas, which dropped 15 cents to $4.60/MMBtu as of its June 27 preliminary settlement. GTN, Kingsgate spot gas last settled lower May 20, data from S&P Global Commodity Insights shows.

Sumas and Kingsgate are the two main entry points for Western Canadian gas to flow into the PNW.

As of 12 pm ET, Westcoast Station 2 spot gas climbed 23 Canadian cents to trade at C$5.23/GJ on the Intercontinental Exchange, reflecting looser constraints for gas upstream of BC Pipeline's Station 4B South.

Higher inflow capacity

The spot gas price drop for Canada-to-PNW import locations is linked to increased flow capacity upstream of Sumas on WestCoast Energy's BC Pipeline that could shift the near-term supply-demand balance.

Capacity past BC Pipeline's Station 4B South was capped at around 1.1 Bcf/d from June 19-25, with capacity originally increasing to 1.27 Bcf/d June 26-27 and to 1.34 Bcf/d June 28-30, according to a notice posted June 22.

WestCoast Energy informed customers June 23 of a revised higher capacity of 1.5 Bcf/d for Station 4B South on BC Pipeline June 29-30. The midstream operator will delay some planned maintenance work until July.

Station 4B South is located just south of Prince George in British Columbia.

The additional capacity at Station 4B South more than offset deeper capacity cuts at GTN's Kingsgate, announced June 27. Flow Past Kingsgate will be limited to 2.29 Bcf/d June 27-July 1, down from a previous limit of 2.39 Bcf/d, because of planned maintenance work on GTN's Station 7 Unit C.

Outlook

A potent combination of lower projected gas-fired demand and higher net inflow capacity could put further pressure on Pacific Northwest cash market gas benchmarks like Sumas and GTN Kingsgate in the near term.

The average PNW temperature was forecast to plummet into the low to mid-60s Fahrenheit June 28-30, according to CustomWeather and Platts Analytics. Lower temperatures would erode recent gains in gas-fired power demand just as inflow capacity is increasing.

Cooler weather is expected to linger well into the first two weeks of July, the National Weather Service's six- to 10-day and eight- to 14-day outlooks show.

As for inflow capacity, Westcoast Energy's July schedule for Station 4B South shows fluctuating capacity limits, as of a June 23 critical notice. For July 1-5, capacity will be limited to 1.35 Bcf, below the 1.5 Bcf/d allowed for June 29-30 but well above the 1.1 Bcf/d permitted earlier in June.