Force majeure on Gas Transmission Northwest to limit gas inflows from Western Canada into PNW

Strong points

Flow Past Kingsgate limited to 1.79 Bcf/d

GTN, Kingsgate discount widens over 30 cents

Strong BPA hydroelectric production could mitigate the impact

An unplanned outage of the Gas Transmission Northwest pipeline system will limit flows past Kingsgate for the foreseeable future, the pipeline operator said, limiting natural gas inflows from Western Canada into the Pacific Northwest and increasing the GTN in cash, the Kingsgate discount to cash out Henry Hub.

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Gas Transmission Northwest declared force majeure late in the afternoon of May 16, after the close of the daily trading session. The pipeline experienced an unexpected compressor station failure at Station 3 near the Canada-US border, according to a critical advisory released that day.


Flows beyond Kingsgate will be limited to 1.79 Bcf/d from May 17 until further notice, down from full operating capacity of around 2.65-2.7 Bcf/d. Kingsgate is one of the two main routes for bringing gas south into the Pacific Northwest from western Canada.

Impact on prices

GTN, Kingsgate spot gas saw its discount to cash out Henry Hub explode to $1.86 during May 17 trading, according to preliminary settlement data from Platts. GTN, Kingsgate fell 6.50 cents to $6.36/MMBtu in preliminary settlement, while many other regional spot gas prices saw gains of 20-35 cents.


The constraint limiting the ability to export gas to the United States was reflected in other gas spot prices in Canada. Cash Westcoast Station 2 also saw its gap with cash Henry Hub widen, trading at 29 cents Canadian at C$6.82/GJ on the Intercontinental Exchange on the afternoon of May 17.

Kingsgate’s flow restrictions also helped push up spot gas prices in California and the Southwest, which saw increases of 35 to 65 cents in preliminary settlement on May 17. Pipeline naming data shows gas deliveries to Gas Transmission Northwest’s Pacific Gas & Electric system fell by 165 MMcf on May 17, increasing California’s reliance on inflows from the Rockies and the Permian Basin.

Prior to the unplanned outage, Gas Transmissions Northwest had scheduled maintenance work for most of May that was expected to limit flows past Kingsgate to 2.12 Bcf/d from May 7-28. The constraint has helped widen GTN, Kingsgate’s spread to cash out Henry Hub at an average discount of $1.43 so far in May, double the average discount of 71 cents in April.

Outlook

The price impact of Kingsgate’s flow restrictions could be partially mitigated by stronger hydroelectric generation in the Pacific Northwest, although forecast colder temperatures could boost residential and commercial demand.

Hydroelectric generation in the Bonneville Power Administration’s footprint has increased significantly recently, averaging 195 GW/d over the past seven days (May 10-16), compared to 144 GW/d over the previous seven days ( May 3-9). Hydropower generation to date has averaged 180 GW/d, compared to 164 GW/d in the same period of 2021. Drawn power generation demand.

The National Weather Service forecast below normal temperatures for Washington, Idaho and Montana in its six-to-10-day outlook, with colder weather spreading south to include Oregon in the eight-to-14 day outlook. days.

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