Hydro power also registers higher than normal
Maintenance to lower exports some by summer
Denver — Record volumes of Canadian natural gas flowing into the US Pacific Northwest combined with strong local hydroelectric output weakened regional pricing hubs.
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Register NowPrice strength observed at the Sumas and Kingsgate hubs through the first two months of winter quickly evaporated in January amid incremental length in the region. Sumas basis versus Henry Hub averaged minus 8 cents/MMBtu this month, roughly 33 cents weaker than a year ago and a decrease of about 75 cents from basis observed between November and December.
Similarly, Kingsgate saw significant downward pressure as basis averaged minus 35 cents/MMBtu month-to-date in January, a year-on-year decline of about 47 cents and roughly 44 cents weaker than pricing observed over November and December.
The biggest factor driving weakness across these hubs has been incremental imports from Western Canada through Sumas and Kingsgate corridors. Month-to-date in January, total Pacific Northwest inflows from West Canada averaged a record high 3.76 Bcf/d, an increase of about 260 MMcf/d from last January, according to S&P Global Platts Analytics.
Low-cost AECO gas found a home in the US Northwest this winter, leaving one oversupplied market for another, taking advantage of the additional cross border capacity added at Kingsgate via the West Path Delivery Project that entered service in June 2020. Flows through Kingsgate have averaged an all-time high of 2.65 Bcf/d in January, continuously rising since hitting a three-year low of 2.09 Bcf/d in May 2020, according to Platts Analytics data.
It was driven by abnormally tight AECO to Malin spreads as Western Canadian operators worked under a special protocol allowing additional injections into storage fields. Further west, Canadian exports to the US Pacific Northwest through Sumas averaged 1.11 Bcf/d in January, marginally weaker than December inflows of about 1.13 Bcf/d, which marked the strongest monthly average in nearly three years.
Hydro's share strengthens
In addition to strong cross-border inflows, Bonneville Power Administration hydroelectric generation has gotten off to a strong start to the new water year that began in October 2020, driven by heavier precipitation compared to a year ago. According to the National Oceanic and Atmospheric Administration's Northwest River Forecast Center, regional precipitation has averaged 93.5% of normal this water year-to-date, ranging from October through January.
However, despite being below normal, precipitation levels have come in about 20 percentage points stronger than this time last year, which has bolstered BPA hydro generation. With the exception of December, which saw just over 68% of normal precipitation, the rest of the months this water year experienced above-normal precipitation, averaging 107% of normal.
Hydro generation in the region has averaged 234 GWh/d to start 2021, a year-over-year increase of about 45 GWh/d, according to BPA data. Hydro's regional market share has continued to prosper, averaging 79% this month, rising 8 percentage points from a year ago at the expense of gas-fired generation that has slipped over 2 percentage points this month compared to last year, averaging 6% of the generation stack and about 17 GWh/d.
With the ongoing La Nina weather phenomena expected to bring above-average precipitation to the region through the balance of winter, it is likely hydro will remain strong in the coming months.
Summer maintenance
Despite current flows hitting new highs, Kingsgate exports in summer 2021 are scheduled to be slightly more restricted than summer 2020's already weak levels. AECO exports at Kingsgate averaged 2.26 Bcf/d in summer 2020, a drop of about 20 MMcf/d from summer 2019. This occurred despite a 270 MMcf/d expansion, the West Path Delivery Project, entering service in June, as maintenance downstream on GTN severely limited exports.
Gas Transmission Northwest's summer 2021 maintenance schedule indicates capacity downstream of Kingsgate will be about 50 MMcf/d lower than summer 2020 at 2.34 Bcf/d. Maintenance is to begin the summer far less restricted than last summer, but from May through September, Kingsgate will have about 100 MMcf/d less room than the same time in summer 2020.
The S&P Global Platts LNG Virtual Conference is gathering the industry to discuss navigation of the global pandemic and the associated risks, the ongoing transition of the global energy economy, policy implications of the 2020 US election and more.
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