Robust flows of natural gas southward from Canada into the Lower 48 in November are bolstering already stout U.S. supplies, helping to keep next-day cash prices in check relative to last year, analysts say.
“For most of the month, imports have run more than 1 Bcf/d higher than last year, with strength most evident in flows to the West and Upper Midwest,” Mobius Risk Group analysts said. “This source of incremental supply is adding to reported all-time domestic production, and challenging market bulls who have seen a multi-month period of tight weather adjusted inventory data.”
U.S. production over a recent seven-day run averaged more than 105 Bcf/d – a record and nearly 4 Bcf/d above year earlier levels, according to an analysis issued Friday by Wood Mackenzie Canadian imports hovered at 5.2 Bcf/d, putting total Lower 48 supply above 110 Bcf/d.
That imports from the United States’ northern neighbor are holding strong even as domestic producers ramp up ahead of an expected wave of LNG facilities on the Gulf Coast is significant, analysts say. Canadian supplies could help to smooth out price volatility this coming winter in the West. Last winter, prices surged in California and the Pacific Northwest, at points spiking to more than three times the national average at several hubs.
Weather proved unusually frigid in the West last winter and, at the same time, supplies in storage were lighter than in prior years. Cash prices at the Malin hub in Oregon, for example, topped $50.00/MMBtu in December 2022, far above the $16.58 peak for the national average at the time, according to NGI data.
Abundant supplies this year – notably including strong flows from Western Canada into the Northwest – should help prevent a repeat of such extreme spikes, analysts at East Daley Analytics said. Prices at Malin recently have hovered near the $6.00 level, according to NGI’s daily cash market price data.
East Daley Analytics analyst Zach Krause also noted that more supply potential is in the cards. TC Energy Corp.’s Gas Transmission Northwest Xpress (GTN Xpress) project in October received approval from federal regulators. The $75 million project will add 150 MMcf/d of capacity from Western Canada to the Pacific Northwest.
GTN Xpress plans to modify compressors to increase flows from Idaho to Malin, raising GTN pipeline capacity to 2.85 Bcf/d from 2.7 Bcf/d, Krause said. He estimated the expanded flows would arrive for the winter of 2024-2025.
Gas prices “jumped” on the West Coast last winter “when severe weather coincided with several pipeline outages.” The combination “drained Pacific region storage inventory to historic lows” by the end of the first quarter of 2023, “supporting a regional price premium through the year,” Krause said.
Stronger supplies from Canada this year and likely next could eat into that premium, he said.
The California Factor
RBN Energy LLC analyst Sheetal Nasta said more sources of natural gas are needed in the West, given the situation in the Northwest and California’s outsized dependence on gas from the Permian Basin. When production curtailments restrict westward flows from the Permian, prices in California often rally as well.
“Without new westbound pipeline capacity, markets west of the Permian have been hard-pressed to take advantage of the supply growth in West Texas and have struggled to consistently maintain adequate natural gas supplies,” Nasta said.
The positive news, she said, is that natural gas supplies in storage are elevated this fall in the Pacific region. Stocks in the region were 6% above the five-year average as of Nov. 10, according to the Energy Information Administration.
That marked a dramatic improvement from as recently as mid-summer. While national gas storage levels finished July 12% above the five-year average, inventories in the Pacific region were 13.5% below historic norms at the time.
Along with the elevated production and imports, California regulators’ August decision to allow Southern California Gas Co. to substantially increase its maximum gas storage level from 41.16 Bcf to 68.8 Bcf at the Aliso Canyon facility was key.
“Six months ago, the U.S. West Coast natural gas market looked like it was in dire straits. A harsh winter had depleted stocks to the lowest level in over a decade and it seemed like the region would be hard-pressed to refill storage to a reasonable level, given limited and constrained pipeline options to flow incremental gas west,” Nasta said. Instead, Pacific storage “staged a remarkable comeback.”
