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Canada exports less natural gas to US Pacific Northwest despite lower hydro, nuclear

Highlights

California relies less on gas-fired power

Tight Southwest market likely in July, August

Despite lower hydroelectric output and a nuclear plant outage in the US Pacific Northwest, the region is importing less gas from Canada summer over summer even as Alberta production grows and the West Coast prepares for a tight balance later in the season.

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Since June 1, exports at Kingsgate to the US Pacific Northwest have reached less than 90%, its lowest utilization since the start of May, according to S&P Global Platts Analytics. Kingsgate has flowed below utilization, leaving 100 to 200 MMcf/d of spare export capacity open, for most of summer, with the export point averaging 166 MMcf/d of spare capacity since the start of May.

Tightness in the West Canada gas market this summer may well be contributing to lower volume of exports, but there has been a lack of demand in the Pacific Northwest. For example, California is generating more of its own power this summer and pulling less from the Pacific Northwest, meaning the low hydro and nuclear outage have not led to increased gas demand or stronger pull from Western Canada.

From a West Canada perspective, cutting exports makes sense as exports to the US Midwest have surged along with local demand. This has left little gas to inject. Still, low hydro nuclear output would seem to support gas demand and additional imports from West Canada. Bonneville Power Administration hydro output was down in April and May as was nuclear generation with the Columbia River Generating station coming down in early May.

However, the Pacific Northwest has been able to lose generation from hydro and nuclear without needing to ramp up gas-fired generation because exports to California are down. Lower power consumption in California is not the cause of this, as CAISO generation is up on the year, with wind and thermal generation more than offsetting lower power imports from BPA.

If the Pacific Northwest imports less from Western Canada than Platts Analytics was expecting at the outset of this summer, this could help to ease the supply crunch as Canada's storage volumes continue to dive below last year's levels. However, even with exports to the US West Coast coming in below expectations, Canadian storage injections have still lagged.

California is currently generating more of its own power rather than relying on power imports from the Pacific Northwest. If California starts to ramp up power imports as summer progresses, this could create more of a pull for Westren Canada gas into the Northwest, given lower hydro is expected to persist, and could tighten AECO prices further.

Estimated storage inventories in the US Southwest, which includes California, have soared since May, climbing from 217 Bcf on May 1 to 261 Bcf on June 9, which is 63 Bcf higher than the five-year average, according to Platts Analytics. Taken at face value, that would seem to contradict the concerns SoCal Gas highlighted in its recent Summer 2021 Reliability assessment.

The assessment saw significant challenges to reaching typical end-of-October inventory levels without demand curtailments. While the inventories may seem high, the tightness has always been concentrated in July and August. Power burn estimates have already begun to climb almost 1 Bcf/d month over month, and they are forecast to add another 1 Bcf/d in July and August.

Platts Analytics is currently forecasting outright prices at SoCal Gas city-gate to reach $6.28/MMBtu and $7.23/MMBtu in July and August, respectively.