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Cash Westcoast Station 2 rebounds in continued pricing volatility

Highlights

Spot Westcoast Station swings from 10.50 cents to over C$4/GJ

Higher southbound capacity could lend some price stability ahead

Cash Westcoast Station 2 rebounded more than $4 in Oct. 4 trading, boosted by increased capacity along several segments of Enbridge's Westcoast Energy pipelines.

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The West Canada gas benchmark has had a volatile run over the last several months, with even more dramatic daily price swings observed in the last two weeks.

Spot Westcoast Station 2 gained $C4.20 to trade at $C4.30/GJ Oct. 4, up from flirting with negative pricing Oct. 1, when the location settled at $C0.105/GJ.

Cash Westcoast Station 2 is no stranger to volatility. Substantial price swings were the location's norm until the North Montney Mainline expansion on TC Energy's NOVA Gas Transmission Pipeline came online in early 2020. The expansion gave producers the option to shift some volumes on to NGTL, according to S&P Global Platts Analytics. From early 2020 through August 2021, prices remained fairly steady.

However, record high gas production in Western Canada this summer, combined with Westcoast Energy's pipeline maintenance projects limiting flows of gas out of the region, have interrupted that pricing stability.

NGTL's scheduled maintenance projects have also contributed to the region's periods of limited takeaway capacity.

Part of the pressure on West Canada's takeaway capacity is the result of strong pricing for liquids, which incentivizes associated gas and wet gas production even when pricing for dry gas is low. Total production pulls back only when prices drop to the point that some producers decide to cut back, allowing prices to rise again.

Higher flow capacity

Flow restrictions on Westcoast Energy have eased recently.

Capacity through the 26-inch Alberta West segment was increased to around 345 MMcf/d Sept. 29, with Platts Analytics data showing that flows rose to the new limit by Oct. 4. Maintenance on Westcoast Station's 26-inch Alberta West segment had slashed the pipeline's receipts from NGTL at Gordondale to zero Sept. 27-29, reducing optionality for gas.

During September, planned maintenance limited flows past BC Pipeline's Station 4B, just south of Prince George, to 1.2 Bcf/d. Southbound flows to Sumas along Westcoast Energy's BC Pipeline are a major outlet for Western Canada production.

Capacity past Station 4B was scheduled to rise steadily through the first week of October, according to a critical notice posted to Westcoast Energy's electronic bulletin board. By Oct. 8, flow capacity past Station 4B is set to reach 1.53 Bcf, up 300 MMcf/d from Sept. 30

Outlook

With more room for gas to move out of Westcoast Station 2's footprint and toward demand markets, the spot location could see some stabilization over the next several weeks.

Premium pricing in the US Pacific Northwest will likely drive more volumes of gas south, with PG&E, Malin, trading at $6.035/MMBtu and Stanfield, Oregon, trading at $5.86/MMBtu Oct. 4, according to Platts preliminary settlement data.