Analysis: Easing restrictions on BC Pipeline to lower Pacific Northwest prices, boost supply

Denver — Additional gas supply from Western Canada will make its way into the US Pacific Northwest in September as maintenance restrictions on a key cross-border pipeline ease significantly.

Capacity through BC Pipeline's station 4B South near Prince George, British Columbia, will rise about 300 MMcf/d in September to an average 1.3 Bcf/d, according to a revised month-ahead maintenance schedule released last week by Westcoast Energy.

The additional southbound supply reaching the Canada-US border could see flows through the Pacific Northwest Sumas hub average upwards of 900 MMcf/d in September, an increase of 250 MMcf/d from the August average, data compiled by S&P Global Platts shows.

Capacity is expected to ramp up slowly, averaging about 1.26 Bcf/d during first-half September, later rising to 1.35 Bcf/d during the latter half of the month.

PRICES

In August, month-ahead forwards prices at Sumas averaged $1.75/MMBtu or about 11 cents weaker compared with the hub's cash price average during the month, S&P Global Platts data shows.

While seasonality typically contributes to lower gas prices in September, the anticipated uptick in imported supply at Sumas is likely responsible, at least in part, for the price divergence.

Immediately following the startup of maintenance on BC pipeline in July, gas prices at Sumas were jolted sharply higher. After starting up on July 14, Sumas prices averaged $2.14/MMBtu through end-July, compared to an average $1.83/MMBtu during the first 13 days of the month.

Basis prices at Sumas were also sharply higher during the July maintenance period, averaging just a 15-cent discount to the benchmark or about 38 cents stronger compared with basis prices in same period last year.

REGIONAL DYNAMICS

Weaker prices at Sumas next month should see regional price and supply dynamics shift in September.

Since the startup of maintenance, higher Sumas prices have cleaved the Rockies gas market, moving Wyoming's Kern River Opal hub to a sharp premium to the state's nearby CIG Rockies location.

Since mid-July, the premium at Opal -- a key gateway for Rockies gas moving west -- has averaged 20 cents/MMBtu compared to an average 10 cents/MMBtu, during the first two weeks of July.

On Wednesday, the Opal premium over CIG briefly spiked to 55 cents/MMBtu.

As the Opal-CIG spread weakens, gas transmissions from the Rockies to the PNW should ease.

In September, Platts Analytics is forecasting Rockies flows to the PNW to average about 1 Bcf/d.

Since the startup of maintenance and through late-August, Rockies inflows to the PNW have averaged about 1.15 Bcf/d compared with flows that averaged 650 MMcf/d from mid-July to late August 2018.

-- J. Robinson, jrobinson@spglobal.com

-- Jack Winters, jack.winters@spglobal.com

-- Edited by Gail Roberts, newsdesk@spglobal.com