Oh, Canada imports

Published at 18:09 17 Jan 2019 by . Last edited 11:18 22 Aug 2019.

Today’s report (week ended 11 Jan): EIA: net change: -81 bcf, EA: -81 bcf

  • Today’s print was in line with our models. Res-com declines were mostly offset by a 1.8 bcf/d surge in power w/w. Though production gains were minor, a 0.7 bcf/d increase in net Canadian trade pushed total supply some 1 bcf/d higher w/w.

Next Thursday’s report (week ending 18 Jan): EA preliminary: -172 bcf

  • A nearly 30% w/w increase in GWHDDs should drive some 10 bcf/d in w/w res-com growth. Our models are indicating 2.6 bcf/d w/w growth in power demand. Total supply will be up despite lacklustre production readings thanks to incremental Canadian flows and LNG sendout.

Oh, Canada imports

This winter’s ebbs and flows in cold weather continue to cause swings in US gas prices and heating demand. Those swings are now likely to boost net gas imports from Canada, which traditionally spike as seasonal cold inflates prices in the US Northeast and Midwest. Our balances forecast a jump in net imports from north of the border—by +1.0 bcf/d, between the current week and the end of this month—on the forecast for freezing temperatures over much of eastern North America.

The first half of this month has already seen weather-driven net Canadian trade strengthen, a trend that is likely to continue. The most weather-dependent main border point is Waddington, on the border of New York and Ontario, which connects the Iroquois Gas pipeline to the TransCanada system. Average low temperatures in New York for the first half of January of 29°F have already seen flows through Waddington increase, by 0.3 bcf/d m/m, to 1.0 bcf/d in the month-to-date, flat y/y. This is before the forecast polar vortex hits later this month, with gas-weighted HDDs (GWHDDs) in the Northeast projected to jump by a further 10% w/w. Next week’s freeze will likely see Waddington flows max out close to the point’s 1.3 bcf/d capacity.

With the Dawn storage hub well-supplied for the rest of the winter, there is economic incentive for Canadian gas to move south in higher volumes during cold spells. As of 11 January, Dawn had 205 bcf in inventories—up by 20 bcf y/y and on track for an end-March carryout of 85 bcf, 15 bcf above the five-year average. New York citygate prices, such as Transco Zone 6 (TZ6), have been sitting above Dawn prices for most of this winter. The TZ6-Dawn spread has increased during previous cold events, with TZ6 spiking to as high as $2.50/mmbtu above Dawn despite both predominantly serving res-com demand around major cities (New York and Toronto, respectively). With the additional $0.29/mmbtu Iroquois Gas toll at Waddington, the TZ6-Dawn spread is likely to see its arbitrage window stay open during the coming extreme cold period (see Fig 1).

Outside of the recent higher volumes spurred by cold, Canadian gas trade this winter has been soft. A warm December 2018 pushed total net cross-border flows down, by 0.9 bcf/d y/y, for the month. Typically, when daily low temperatures average above 50°F in New York, flows reverse through Waddington and the US exports gas to Canada (see Fig 2). While December 2018 in the Northeast was not quite that warm—the average low was 35°F—it did include seven days when the low in New York was above 40°F as GWHDDs in the region fell by 15% y/y. This depressed the need for imports through Waddington. Waddington’s average flows for the month dropped, by 0.2 bcf/d y/y, to 0.7 bcf/d.

Canadian net imports this winter have been further hampered by infrastructure developments. Lower capacity on Westcoast Energy’s T-South due to a pipeline outage has allowed just 0.9 bcf/d through the Washington state border point at Sumas thus far in the injection season—down by 0.3 bcf/d y/y. The summer 2018 start-up of the Rover Pipeline has boosted US exports into Canada through the St. Clair border point in Michigan, by 0.5 bcf/d y/y, this heating season. While these new flows have not yet been tested by a polar vortex event, a severe cold snap would likely keep an additional 0.2-0.3 bcf/d of Northeast gas that would have gone to Canada in the US.

Fig 1: Waddington border flows (bcf/d) vs TZ6-Dawn ($/mmbtu) Fig 2: Waddington border flows (bcf/d) vs New York City avg low temperature (°F)
Source: Reuters, Ventyx, Energy Aspects Source: Weatherbell, Ventyx, Energy Aspects

Trading this week has been punctuated by the forecasts calling for a substantial late January cold event with the potential to extend into February. Our view has been that the padding in inventories from late December and early January warmth would need a significant cold event to measurably move balances. Since last Thursday’s Panorama, our end-January storage estimate has been knocked down by more than 200 bcf. That whittling down puts a significant focus on February weather, as a follow-on cold event to the approaching one would re-ignite deliverability concerns in some regions. In the near term, the potential for production losses in Appalachia and Bakken could also see current withdrawal estimates increase notably. Trading will continue to move in sympathy with the weather outlook. Given the weather forecast shifts between yesterday’s morning (colder) and afternoon (warmer) model runs, followed by a shift back this morning (colder), it all but assures weather volatility.

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