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Upper Midwest gas market finds role as crossroads of America

The Upper Midwest market has become the crossroads of America for natural gas, and finding that sweet spot helped the region get through a record-breaking freeze without breaking the bank.

Chicago demand reached an all-time high of 10.65 Bcf January 30, but cash prices in the region experienced a decline as inflows ramped up to add bearish sentiment.

At the same time, inflows to the Central region increased by approximately 1.04 Bcf on the day to 16.3 Bcf, according to Platts Analytics. The last time inflows to the region were greater was February 27, 2015, when they were 16.49 Bcf.

The cash price for Chicago city-gates fell $2.43/MMBtu to $4.995/MMBtu January 30.

The bearish sentiment can be connected to robust inflows from the Northeast, the Rockies and Western Canada. Last year the response to a period of high winter demand was very different. Chicago city-gate sat at $9/MMBtu on January 2 2018. At that time, Chicago demand was approximately 9.89 Bcf, about 76 MMcf lower than the new record high of 10.65 Bcf, according to Platts Analytics.

When Chicago city-gate reached the $9/MMBtu last year, inflows from the Northeast into the Upper Midwest were 2.03 Bcf. By comparison, Northeast inflows were 4 Bcf when Chicago demand reached the all-time high.

The jump of inflows from the Northeast year on year is largely due to the buildout of Nexus Gas Transmission and Rover Pipeline, both of which move gas to the Upper Midwest from the Northeast.

The first to come online was Rover Pipeline, which went into service in September 2017. That pipe was averaging flows into the Upper Midwest of 1.3 Bcf/d last January. So far this year, flows on Rover from the Northeast into the Upper Midwest have averaged 3 Bcf.

The Nexus Gas Transmission pipeline came online in October 2018adding even more downward pressure to the Upper Midwest market. Flows from the Northeast to the Upper Midwest on Nexus have averaged 650 MMcf/d this January.

Rockies Express Pipeline takes gas from the mountains into the Upper Midwest. On January 30, those inflows on REX sat at 1.05 Bcf - the highest levels since totaling 1.1 Bcf on November 6.

Inflows from Western Canada also ramp up in times of high demand in the Midwest. Volumes transported via the Viking Pipeline increased 48 MMcf on the day to 451 MMcf on January 29. That marked the highest level seen since flows on Viking were at 475 MMcf on December 31, 2017.

Looking forward, the Upper Midwest market is positioned so that any demand spike can be mitigated by an influx of supply from several regions. As production increases in surrounding regions, that gas should find its way into the Midwest and alleviate volatility.