B.C. Pipeline Closes After Flood, Squeezing Suma Prices

Strong points

Sumas futures surge after blackout

The cold could drive up prices

The shutdown of one of two natural gas lines in Westcoast Energy’s BC Pipeline, following severe flooding in the Vancouver, British Columbia area, pushed up prices in some regional price centers, and higher demand could cause prices to spike.

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Flooding on November 15 and 16 forced Westcoast to take the smaller of the two main lines, a 30-inch pipeline that supplies the Sumas export center on the B.C.-Washington border with gas from the line, offline. Westcoast station 2.

Westcoast’s parent company, Enbridge, announced on November 16 that capacity at Huntingdon, just north of Vancouver, would be reduced to about 1.5 Bcf / d from 2 Bcf / d. This effectively reduces the supply to Vancouver and the Sumas hub. No timeline has been provided on when the line will resume full service.

This loss of supply from Sumas pushed prices at the hub to around US $ 6.00 / MMBtu, up from $ 4.70 / MMBtu the previous two weeks. Vancouver takes what it needs off the pipe and what’s left is available for Sumas. If cold weather sets in in Vancouver and stimulates demand, Sumas could be highly vulnerable to price spikes during this outage, according to S&P Global Platts Analytics.

This is the same pipeline that exploded on October 9, 2018. At that time, prices in Sumas skyrocketed due to the loss of supply, while prices upstream from WCST2 weakened. Depending on the duration of the outage, this could also weigh on AECO this winter. The loss of the WCST2 outlet to the south could increase supply to the NGTL system where production is already threatening to overload NGTL and AECO this winter. South of the border, however, the loss of supply from Western Canada is pushing up spot prices, but the futures market does not fully benefit from the rise in the months to come.

Sumas futures soared upon news of the outage. The December contract saw the largest increase, with each subsequent month’s contract increasing less than the month before. This would indicate that the market expects the risk of the pipe going offline to decrease as winter progresses, and that the biggest price risk is in December, according to Platts Analytics. The April and May contracts for Sumas remained unchanged upon news of the shutdown, suggesting the market expects the pipe to be back online by the summer.

WCST2 is on the other side of the constraint, and this drop in takeout capacity has lowered spot prices to an 88-cent rebate for AECO for the November 17 gas day. WCST2’s December contract also fell dramatically against AECO, although the rest of the winter month’s contracts saw a much smaller drop.

Enbridge’s reduction at Huntingdon reduced throughput by approximately 300 MMcf / d. This reduction spilled over into the Pacific Northwest. Northwest Pipeline connects in Canada to Sumas, not far south of Vancouver. It then flows south to the Seattle and Portland demand poles. Throughputs for the seven days leading up to November 16, when Enbridge made its announcement, averaged 1.2 Bcf / d at Sumas, according to Platts Analytics.

The days since have averaged just under 900 MMcf / d, a reduction almost equal to that of Enbridge at Huntingdon. Gas Transmission Northwest continues to be subject to capacity restrictions, limiting total flows from western Canada to the Pacific Northwest to 3.3 Bcf / d. If restrictions at Huntingdon continue, it will likely ensure that flows from western Canada to the Pacific Northwest underperform expectations at a time when the Pacific Northwest and demand for PG&E increases.

The Pacific Northwest will need to tap into additional supplies from the Rockies, as it did in October 2018. In the days following the explosion, supplies from western Canada to the Northwestern Pacific fell, forcing the region to draw on additional supplies from the Rockies. As demand in the Pacific Northwest and PG&E increases in the days and weeks to come, gas consumption in the Rockies is expected to increase.

While Stanfield and PG&E Malin spot prices have risen in recent days, the December contract remains largely unchanged. December Malin’s futures have averaged $ 5.82 / MMBtu over the past three days, barely changed from $ 5.72 / MMBtu and nowhere near the roughly $ 1 / MMBtu of Sumas contracts. Malin and Stanfield are also unaware of the month-over-month weakening of Sumas’ upside oscillation, suggesting that the market is not appreciating the recent increase in December price risk by. compared to the following months.

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