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ANALYSIS: Frigid Western Canadian weather could diminish natural gas exports to US

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ANALYSIS: Frigid Western Canadian weather could diminish natural gas exports to US

Highlights

Exports down to Midwest, Pacific Northwest

Fundamentals likely to strengthen AECO hub

Denver — The onset of colder weather in Canada's Alberta province not only stands to bolster prices at the AECO hub; it also could eat into exports flowing into the US Pacific Northwest as that region also faces higher demand on top of a pipeline maintenance.

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Alberta is on the front end of a cold snap, and by Oct. 24 even colder temperatures, and the end of maintenance limiting how much can flow to the US Pacific Northwest, could drive a sharp price increase at AECO.

Calgary temperatures have averaged 27.5 degrees Fahrenheit since Oct. 14, down 25.5 degrees from the prior 30-day average. This has driven a large demand increase and a shift on TC Energy's NGTL Pipeline system fundamentals, according to data compiled by S&P Global Platts Analytics.

Production gains have helped to meet the demand increase, as have decreased exports to the US Midwest on a tighter AECO-to-Chicago price spread. Lower injections have also helped balance the market. However, as demand continues to rise, AECO will be forced to price up to keep more gas for local consumption as the US Pacific Northwest starts to pull on AECO.

NGTL system demand should increase 500 MMcf/d as temperatures drop, and the end of maintenance on Gas Transmission Northwest's system increases capacity between AECO and the US Pacific Northwest by 300 MMcf/d on Oct. 24. This will coincide with US Pacific Northwest temperatures plummeting 10 degrees below normal.

Assuming the Malin hub trades up to get extra supply from AECO, as it has during recent high-demand periods, AECO could feel an additional 800 MMcf/d of demand from its own system and exports to the US Pacific Northwest, according to Platts Analytics.

Alberta injections averaged 400 MMcf/d this past week, so cutting these to zero could help offset about half of what AECO could need to meet demand this weekend. There is a chance production could jump this week as a large amount of production capacity is opening on NGTL. However, most of this extra demand will likely need to be met from cuts to exports, as Alberta's storage fields may not be ready to start withdrawing.

Maintenance and cold weather in Western Canada have already eaten into exports towards the Northwest US. This is likely to continue until restrictions are lifted. Total Western Canadian exports to the Northwest have averaged 2.87 Bcf/d over Oct. 20 and 21, a decline of 300 MMcf/d from the prior 10-day average.

Due to compression issues, Westcoast Energy Pipeline will limit operating capacity at its Station 4B South beginning Oct. 21 through Oct. 31, with capacity slated to average 1.19 Bcf/d for the duration of the outage, a decline of 160 MMcf/d from Oct. 20.

Ongoing maintenance along GTN Pipeline will continue to limit operating capacity to 2.23 Bcf/d through Oct. 23 prior to increasing to 2.56 Bcf/d once maintenance has concluded. With cold temperatures headed to the US Northwest and maintenances expected to ease over the weekend, elevated demand and stronger pricing should incentivize an increase in exports.

However, the US Northwest may need to rely on its elevated inventories on top of incremental Rockies supply to meet excess demand in the interim, according to Platts Analytics.