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Bakken production pushes Canadian exports on Northern Border to 15-year low

Highlights

Flows measure 470 MMcf/d below last August

Exports likely to rise on Great Lakes

Denver — Resurging production in North Dakota's Bakken Shale following a wave of spring shut-ins has pushed Canadian exports to the US Midwest on Northern Border Pipeline down to its lowest flow volumes in more than 15 years, increasing the AECO hub's discount to Chicago pricing. However, Index of Customer data shows a year-over-year increase in Canadian Exports on Great Lakes Gas Transmission line this winter.

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Returning Bakken production and falling capacity have helped push West Canada flows to additional lows on Northern Border, while strengthening prices limit rerouting gas to the US Upper Midwest.

West Canada flows have averaged just 524 MMcf/d in August on Northern Border, the lowest in at least 15 years, and hitting as low as 400 MMcf/d for three straight days early this month, according to data by S&P Global Platts Analytics. In contrast, month-to-date flows averaged 994 MMcf/d in 2019.

Returning Bakken production is the primary reason behind reduced flows, as Platts Analytics production sample has averaged 2 Bcf/d this month, just 176 MMcf/d below samples seen from January through March. Coupled with this has been falling capacity along Northern Border. It has dropped 142 MMcf/d from the first three months to 2.5 Bcf/d this month at Glen Ullin.

Bakken production has climbed back to 1.97 Bcf/d, according to the latest data from the North Dakota Industrial Commission. However, it still remains well below the 3.1 Bcf/d the state averaged in March when the crude oil price collapse struck, prompting a wave of shut-ins, limiting associated gas production.

"Drilling permit activity is slower, but has held up through the oil price collapse," said NDIC director Lynn Helms. "Operators are still attempting to maintain a permit inventory of approximately 12 months and some experienced drilling rig and completion crews."

The lower volumes flowing from Western Canada to the US Midwest have lowered Chicago's premium to AECO this month to 18 cents/MMbtu, which was down slightly from 21 cents/MMbtu in July. As Platts Analytics expects further production in the Bakken the next two months, this should further limit West Canada flows and increase AECO's discount to Chicago.

However, as Canadian exports dip on Norther Border, the Index of Customer data indicates Great Lakes pipeline is likely to see higher exports this coming winter than last. According to 3Q 2020 IOC data, there is 1.327 Bcf/d contracted to be exported into the US Midwest on Great Lakes at Emerson this winter. Q4 2019 data indicates there was 1.1 Bcf/d contracted at Emerson last winter, and the pipe actually exported 900 MMcf/d.

Q2 2020 IOC data indicates there is 1.3 Bcf/d contracted for exports at Emerson this summer, and summer to date, and the pipe has flowed within about 150 MMcf/d of this contracted amount. If this relationship holds, then Western Canada as a whole would export about 1.1 to 1.2 Bcf/d this coming winter.

This gas is largely expected to flow as low variable costs, listed at less than 5 cents/MMBtu to flow from Empress to Emerson to St. Clair. This could contribute to bullishness at AECO this winter, as these strong exports will be compounded with open room on Northern Border to keep pressure on AECO flows into the Midwest.