Denver — Below-normal exports of Canadian gas to the US Pacific Northwest and Midwest are likely to continue well into June as AECO basis continues to strengthen and incentivize storage injections in Alberta, according to S&P Global Platts Analytics.
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Exports to the US Pacific Northwest through Kingsgate have run under capacity this summer. While the market was previously expecting these flows to pick up by June, sentiments are now skewing toward this underutilization continuing throughout the month.
Exports at Kingsgate have averaged 2.1 Bcf/d since May 5, according to Platts Analytics. Some of the weakness is due to maintenance. Kingsgate typically flows at capacity, which is closer to 2.3 Bcf/d or higher. The maintenance schedule for Gas Transmission Northwest, a subsidiary of TC Energy, reports there is 2.227 Bcf/d of capacity at Kingsgate.
Elevated storage injections in Alberta are prompting Kingsgate to continue to move volumes well below capacity. High injection demand in Alberta has driven AECO basis to its highest value in years. AECO basis to Henry Hub has averaged minus 24 cents/MMBtu so far this summer after averaging 19 cents/MMBtu in May. This has collapsed the spread between AECO and the downstream PG&E Malin hub. AECO is trading at a 7 cent/MMBtu discount to Malin this summer compared to a $1.11/MMBtu discount last summer.
June futures had AECO trailing Malin by about 20 cents/MMBtu or more up until the past week, but the June contract has moved to 11 cents/MMBtu behind Malin. This suggests weak exports to the Northwest could persist at least until late June, according to Platts Analytics.
The market appeared to anticipate that weak western Canadian exports to the Midwest would increase in May, but lower exports are now expected to persist through June.
Exports from Western Canada into the US Midwest have averaged 3.1 Bcf/d summer to date, according to Platts Analytics. Exports to the Midwest were 3.9 Bcf/d since last summer until May 21. Earlier forecasts had exports averaging 3.4 Bcf/d this summer. The lower exports are also likely due to the injection strength so far on the NOVA Gas Transmission storage system this summer.
It has tightened AECO to 24 cents/MMBtu behind Chicago. During late April, AECO's May contract closed 44 cents/MMBtu behind Chicago, which would typically incentivize exports to the Midwest. This did not materialize, however, and AECO has stayed within 24 cents/MMBtu of Chicago as exports have remained weak.
Since May 5, the June futures spread between the two hubs has been tightening to as close as 22 cents/MMBtu on May 21, from 33 cents/MMBtu the two weeks prior. This suggests the market is expecting these weak exports into the Midwest to continue into June. The following months have a 40 cent/MMBtu spread or more, which should incentivize exports to the Midwest to increase, according to Platts Analytics.