We are delighted to present our new Monthly publications, formerly known as Data Review, which will share our short-term forecasts. Please note that users licensed for the data service can access our Canada gas balances by clicking here.
A rupture on Westcoast Energy’s BC pipeline is set to reduce Canadian net exports through the winter. The 9 October explosion on Westcoast Energy’s T-South system cut Canadian exports through the Sumas border point to zero, from a pre-accident baseline of 1.0 bcf/d. Westcoast Energy’s timeline shows repairs will be completed by mid-November, but even then, T-South will flow at just 0.9-1.3 bcf/d of its original 1.8 bcf/d in capacity. Our forecast calls for a 0.5 bcf/d y/y decline in net exports to the US this heating season, not just due to this incident, but also because of scheduled NGTL system maintenance and a 1 November start of up to 0.45 bcf/d in flows into Ontario on NEXUS. These US imports have helped eastern Canada erase its y/y storage gap, while western Canada will see a shale-era low end-October carryout of 620 bcf, down 100 bcf y/y. Early cold has not helped to bolster late season injections, nor producers’ drilling programs. Heavy autumn snowfall has led to a fall mud season and delayed drilling and completion activities. Canada’s rig count has been down y/y for most of 2018, which we project will erode current WCSB production gains that in our flow sample stood at 0.5 bcf/d y/y in Q3 18. We project flat y/y WCSB output of 15.9 bcf/d in the heating season.
Gas trade between the US and Canada has been in chaos due to a 9 October pipeline rupture in western Canada. Flows through the Sumas border point dropped from 1.0 bcf/d to zero d/d on 10 October after an explosion on the T-South system of the BC Pipeline the day before (see E-mail alert: BC pipe rupture blows out Sumas winter basis, 11 October 2018). Westcoast Station 2 prices have been in freefall as a result, dropping by $1.18/mmbtu d/d to $0.49/mmbtu on 10 October, and closed below zero on 15-16 October. AECO-C prices have also been volatile. The index has fallen by $1.50/mmbtu since the rupture to a 19 October close of one cent per mmbtu.
A statement on 19 October from Westcoast Energy said that T-South would be repaired by mid-November but would only flow 0.9-1.3 bcf/d of its 1.8 bcf/d in capacity through the winter. Since the restart of an adjacent 30-inch line, flowing approximately 0.6 bcf/d on 11 October, Sumas flows have averaged 0.4 bcf/d. If T-South flows are limited to 1.1 bcf/d this winter, we expect 0.6 bcf/d will cross the border at Sumas. Flows through the Eastport border point in Idaho will likely make up 0.2 bcf/d more in exports. Eastport gas crosses the border on TransCanada’s Gas Transmission Northwest, which connects to William’s Northwest network near Spokane. We have seen flows through Eastport increase 0.2 bcf/d since the T-South accident, indicating some gas is being redirected west into Washington to account for lost volumes. The limited capacity through the winter will also lower AECO’s baseline price, as more gas will be trapped in western Canada. The situation will look similar to the typical spring for AECO, when maintenance restricts flows, only with the potential for some small heating-induced price spikes from cold weather, especially given how low western Canada inventories will be this winter.
This incident is just one facet of our projection for net exports to the US dropping by 0.5 bcf/d y/y for the upcoming heating season, to 5.4 bcf/d. Cross-border trade in the west will also see further slumps of up to 0.6 bcf/d between 20-29 November and 4-15 December as maintenance affecting the NGTL’s Grand Prairie Mainline and Eastern Alberta Mainline, respectively, cuts flows to the Emerson/Noyes border point. The infrastructure boom in the US Northeast is also depressing net exports. Rover Phase 2 has sent 0.9 bcf/d across the border into Canada since 1 June, discounting a 17-20 October force majeure caused by a gas quality issue. The 1 November start-up of Enbridge’s NEXUS could exacerbate this dynamic, as NEXUS will send up to 0.45 bcf/d to the Dawn hub through its Vector Pipeline interconnect. The main role of NEXUS may be to supplement any Rover deliverability issues however, as NEXUS is not fully subscribed and eastern Canada is already awash in US gas. Indeed, eastern Canada has used Rover flows to close its y/y storage deficit, which stood at 65 bcf at the start of May but was 5 bcf by 12 October. Dawn is on track for an end-October carryout close to its peak inventory level of 270 bcf.
Western Canada will not get a similar reprieve from its y/y storage gap. As we have been warning since April, when the western storage gap was 70 bcf y/y, the region is in line for a shale-era low end-October carryout (see Data review: Canada - Storage shortages, 30 April 2018). Our forecast shows western Canada is facing a 105 bcf y/y deficit for its end-October carryout with just 615 bcf in its coffers. Early cold weather has not helped refill inventories late in the injection season, as Alberta and British Columbia each saw September heating degree days set new 10-year highs. Daily NGTL storage receipts in Alberta have borne out this trend, as Alberta injected just 0.2 bcf/d in September, down by 0.3 bcf/d y/y and 0.2 bcf/d below the five-year average. October’s average of 0.1 bcf/d in injections is 0.2 bcf/d off the y/y and five-year average injection pace.
While the weather has been seasonal colder than usual for the late injection season, it has not been cold enough to help Canadian producers avert a ‘fall breakup’. Significant early snowfall came before the ground had hardened from frost, leaving wet, muddy conditions throughout western Canada. The saturated ground has pushed producers’ drilling plans until later in Q4 18, when they will have to rush to complete wells before peak winter. At start-September, Canada’s rig count was up by 27 y/y at 228. Now, less than two months later, it sits at 195, down by 17 y/y.
Given the difficulties plaguing western pipes and producers’ weather-related issues, we project WCSB output will be flat y/y at 15.9 bcf/d during the upcoming heating season. Canada’s rig count also fell y/y during the spring mud season, when rigs bottomed out, down by 57 y/y in mid-March. Now, when production from wells drilled in the spring should have been coming online (given the six-to-nine-month lag for output from new wells), we are seeing a slowdown in WCSB output. Our flow sample for the region, which covers around 90% of production, shows WCSB output of 14.5 bcf/d to-date in October, up by 0.5 bcf/d y/y, but lagging the 14.6 bcf/d in Q3 18 (+1.0 bcf/d y/y). If this trend continues, WCSB’s y/y gains could be erased by end-2018.
|Fig 1: Net Canadian exports via Sumas, bcf/d||Fig 2: 2018 y/y Canadian rig count|
|Source: Ventyx, Energy Aspects||Source: Baker Hughes, Energy Aspects|