With winter fast approaching and HDDs already on the rise, Canada is entering the heating season. Res-com demand typically spikes from 1.1 bcf/d in the summer to an average of 4.5 bcf/d from November–May. A 10% colder-than-average winter would result in an additional 100 bcf in res-com demand alone, which would likely need to be met by an additional call on storage. This could be problematic, as we project Western Canada will have a decade-low end-October carryout of just 615 bcf, down by 100 bcf y/y. Inventories are likely to slip below 400 bcf for the first time in a decade if 10% colder weather occurs. The y/y storage gap will likely allow for narrower discounts between AECO and Henry Hub, given the lack of inventories for Western Canada to rely upon in a cold scenario. Meanwhile, maintenance will continue to depress net Canadian exports, with the 0.15 bcf/d Fort Nelson gas plant going offline for three weeks starting in late September before NGTL performs its final pipe maintenance of 2018 in November.
Winter is fast approaching in Canada, along with the accompanying run-up in total demand that res-com provides during the season. The five-year average for Canadian res-com demand bottoms out in June at 1.1 bcf/d, only to shoot up to a five-year average of 4.5 bcf/d from November–May. This surge in gas consumption is bearing down on Canada as the weather is already turning. Indeed, Western Canada is seeing significant snowfall—the Alberta city of Edmonton set a record earlier in the month for most consecutive days of snow in September.
As Fig 1 shows, there is a close relationship between res-com demand and Canadian HDDs. While the five-year average for the heating season months of November–March calls for 5.2 bcf/d of res-com demand, we can estimate res-com demand for a colder winter by inflating HDDs above our expectations. The results show that if HDDs come in 10% higher than the five-year average, res-com demand will spike to an average of 5.9 bcf/d in the heating season, peaking at 7.0 bcf/d in January. This would result in an extra 105 bcf of total demand over the winter, which would likely need to come from storage. On the flip side, HDDs that were 10% lower in Canada would see the country’s res-com demand sink to a winter average of 4.8 bcf/d, easing the call on storage by 70 bcf between November and March.
The possibility that an extra 100 bcf would be needed from storage this winter just to meet res-com demand under a 10% colder-than-usual scenario is concerning given the storage situation in Western Canada. While new flows of US gas have helped Eastern Canada nearly eliminate a y/y storage gap that stood as high as 75 bcf in May, Western Canada is on track to end the heating season with just 615 bcf in storage, down by 100 bcf y/y to what would be the region’s lowest end-October carryout of the decade. Our balances show an end-March carryout of 420 bcf, which would likely sink to a decadal low of 370-375 bcf if the 10% colder scenario is realised.
|Fig 1: Canadian HDDs vs res com demand, bcf/d||Fig 2: Western Canada storage scenarios, bcf|
|Source: AccuWeather, StatCan, Energy Aspects||Source: StatCan, Energy Aspects|
Of course, the main factor determining gas prices in Canada this winter will be weather. The y/y storage gap in Western Canada will help provide support for AECO prices. While last year Western Canada was able to use inventories as a buffer in AECO during the Arctic freeze in January—when Dawn prices spiked by $5.30/mmbtu d/d to $9.00/mmbtu on 3 January, while AECO rose by just $0.14/mmbtu to a winter high of $2.25/mmbtu the same day—that may not be possible this winter given Western Canada’s precarious storage position. We expect AECO to be at an average $1.30/mmbtu discount to Henry Hub during the upcoming heating season, with the potential for a narrower discount on days when AECO is supported by cold weather.
Other sources of demand do not have such neat relationships as res-com does with HDDs. Canadian net exports to the US have been volatile all summer, with our flow data indicating that net gas trade with the US stood at just 4.6 bcf/d thus far in September, down by 0.7 bcf/d y/y. Maintenance at western border crossings has been the key culprit for the recent slump in flows. The fourth bout of summer work on the NGTL’s Grand Prairie Mainline Loop cut up to 0.6 bcf/d in flows between 10–19 September to the Empress/McNeill point in Alberta, hindering some firm transport capacity as well. The connected Port of Morgan border crossing in Montana saw flows drop by 0.3 bcf/d d/d to 0.9 bcf/d on 10 September, and the point is on track to average a decadal low for gas exports to the US of just 0.95 bcf/d for the month. While October will see only small bouts of work to various compressor stations, NGTL pipeline maintenance affecting interruptible delivery to Empress/McNeill is scheduled between 19–30 November.
Our flow data point to lower Canadian gas exports at other border points as well. Westcoast Energy’s 0.15 bcf/d Fort Nelson gas plant went offline for 18 days starting on 18 September. Disruptions will be felt where the Westcoast system crosses the border, at the Sumas border point. Meanwhile, at the St. Clair crossing, Rover has increased its flows of gas into Canada (thus decreasing Canadian net exports) by 0.2 bcf/d m/m to 1.0 bcf/d in September, further skewing y/y comparisons as its link to Canada via the Vector Pipeline only started in June. We project Canadian net exports of 5.4 bcf/d during the upcoming heating season, down by 0.5 bcf/d y/y.