Today’s report (week ended 5 Apr): EIA net change: +25 bcf, EIA implied flow: +29 bcf, EA: +41 bcf
- Today’s wide range of estimates underscores the difficulty in assessing shoulder season heating load. Our miss was centred in the res-com sector, resulting in a 1.5 bcf/d adjustment in that sector. The EIA reclassification is reflected in the balancing item, contained within the ‘other’ demand category (see page 4 for weekly balances).
Next Thursday’s report (week ending 12 Apr): EA preliminary: +84 bcf
- On our baseline revision to res-com demand, we upwardly revised our heating estimates. Higher flows into Sabine Pass—2.5 bcf/d for today’s flow date—and market chatter on flare activity suggest a potential return to service there. The 1 bcf/d w/w step-back in output registered on flows has no central geography or cause; some output may effectively be undercounted due to lack of intrastate flow data. Maintenance on the Mississippi Canyon Pipeline between 8–10 April depressed Gulf flows by 0.3 bcf/d w/w. Appalachia lost 0.3 bcf/d w/w as the region languished amid minor maintenance events and constrained liquid takeaway capacity. Several Louisiana basins also saw declines, such as the Haynesville (-0.3 bcf/d w/w) and Arkla (-0.2 bcf/d w/w).
Sorry, it's maintenance season
The market’s focus, and rightfully so, has been on how loose fundamentals look. However, while our balances are currently pointing to an end-October near 3.65 tcf, balances do have a lot of moving parts. Shoulder season maintenance always tends to obscure trends, and the week in progress has seen a step back in production growth. In addition, neither the Rockies nor Appalachia have moved back up to pre-freeze off levels. In spite of the weekly retrenchment in output, we still anticipate sequential growth as volumes return. Meanwhile, market chatter has suggested flare activity at Sabine Pass may be a precursor to the end to maintenance at those two trains (T1 and T2 share a flare), which appears to be substantiated by today’s flows. While that end to maintenance will bring demand back upwards of 1.5 bcf/d, maintenance on the Agua Dulce Compressor station feeding NET Mexico will reduce pipeline trade by up to 1 bcf/d from 16–21 April. Power demand, while still up y/y, may also be showing signs of gas-on-gas competition as new combined-cycles have entered service.
Meanwhile, though output growth has received the lion’s share of attention concerning just how loose balances will be, we are also monitoring early season net imports from Canada as they can counterbalance sequential production gains. Month-to-date April Canadian net imports of 4.7 bcf/d are off by 0.5 bcf/d m/m. That decline goes a long way to cancel out the 0.8 bcf/d m/m in Lower 48 production bounce-back from winter disruptions and organic growth we expect this month. We forecast a 0.3 bcf/d y/y slowdown in net imports during the full injection season, a number which could double if maintenance and production losses run for longer than currently assumed. Should the decline in northern cross-border trade continue deeper into the injection season, balances could look tighter than the currently projected 3.65 tcf end-October carryout.
Early season maintenance on TransCanada’s NGTL system has been the primary driver of lower Canadian imports thus far in April. Flows through the Port of Morgan border crossing in Montana dropped by 0.3 bcf/d d/d on 2 April, as modifications to the Grand Prairie Mainline Loop that cut WCSB flows to the east on the system began the same day. Intermittent compressor station upgrades also started in April, choking flows east irregularly: work to the Red Deer River station between 1–5 April by up to 0.15 bcf/d, and to the Vetchland station on 8 April by up to 0.2 bcf/d.
Flows to the west are also being restricted by the ongoing maintenance. Upgrades to NGTL’s Western Alberta Mainline between 4–10 April that cut max capacity by as much as 0.4 bcf/d saw cross-border flows at the Kingsgate point fall by 0.3 bcf/d d/d on the first day of the work. The toll of maintenance extends beyond TransCanada pipes. Westcoast Energy’s T-South is set to endure outages throughout the summer as the company seeks to repair damage from last October’s rupture and subsequent explosion. T-South has an unrestricted capacity of 1.8 bcf/d but will be limited to no more than 1.3 bcf/d this summer. The third week of April will see capacity drop to just 0.9 bcf/d, limiting US imports through the downstream Sumas border point. Thus far in 2019, imports to the US through Sumas of 0.8 bcf/d are down by 0.25 bcf/d y/y.
Even should maintenance ebb later this summer as expected (see E-mail alert: Blame TransCanada! …even though pipeline maintenance set to be lighter than 2018, 10 January 2019), net Canadian imports are unlikely to rise y/y. Another main cause of lower imports, declining WCSB production, is likely to continue throughout 2019. We forecast Canadian production will decline by 0.3 bcf/d y/y during summer 2019. Our scrape data, which covers over 90% of WCSB receipts, shows 2019 output of 14.8 bcf/d has dropped by 0.5 bcf/d y/y, while production indicators for the rest of 2019 do not look rosy either. Canada’s rig count has been down y/y since the start of November 2018, with the current count of 68 rigs well below 2018’s total by 43. This trickles down to less drilling, leaving less Canadian gas free to make its way into the US.
While cross-border trade serves as the prime source of demand for Canadian gas in the injection season, this summer will see additional local production siphoned away to storage (unless maintenance affects interruptible transport into storage, which is currently unknown). Western Canada entered the injection season with inventories of just 425 bcf, down by 50 bcf y/y from 2018’s previous multi-year low. The start of the injection season has seen Alberta send gas back into storage in earnest. Daily NGTL storage activity points to 0.4 bcf/d of injections in Alberta thus far in April, compared to just 70 mmcf/d in refills in April 2018. Canada’s declining production must now meet expanding total domestic demand, given the desire to avoid a record-low end-October carryout in the WCSB for a second straight year.
Storage injections in the east will also depress net Canadian imports this summer. While end-March inventories of 40 bcf at Dawn were only off by 15 bcf y/y, that means Eastern Canada will need to import that much more from the US in order to hit its usual 260 bcf threshold to start the heating season. The result is likely to be more Canadian imports of US gas via Rover. Flows from Rover into Canada (via its interconnect with the Vector Pipeline) did not begin until 1 June last year. Even without much spare capacity beyond the 1.0 bcf/d currently flowing, 2019 will almost assuredly see higher total flows given Rover’s remarkably consistent flows of between 0.8-1.0 bcf/d into Canada every operational day last injection season.
|Fig 1: Kingsgate border point flows, bcf/d||Fig 2: Westcoast Energy T-South capacity, bcf/d|
|Source: Ventyx, Energy Aspects||Note: T-South’s unrestricted capacity is 1.8 bcf/d.
Source: Westcoast Energy, Energy Aspects