Storage Activity Bullish for Canadian Gas Prices: RBN
Canadian gas storage volumes ended the summer injection season at record high levels, and while winter temperatures have been milder than anticipated, gas is being withdrawn from storage faster than expected, suggesting Canadian gas prices will remain strong, RBN Energy analyst Martin King said in a December 29 blog post.
Total Canadian gas in storage stood at about 844bn ft3 at the end of October, 21% higher than the previous October and about 10% higher than the five-year average, according to RBN’s estimates. King attributed the increase to a combination of weaker Covid-related demand and higher than average storage levels at the end of the 2019-2020 heating season last March.
Withdrawals from storage over the winter heating season are largely dependent on temperatures, King noted, and the first couple months of this winter have been milder than anticipated.
But Canadian gas exports to the US have been higher, with an expected net gain over the course of the winter of about 300mn ft3/d, while Alberta’s shift away from coal to natural gas in the power sector has picked up pace and will continue to do so through 2021 and into 2022.
“The total expected gain in power burn is in the range of 600mn ft3/d, with about 400mn ft3/d of that total coming into service over the course of 2021,” King writes. “With more fuel conversions expected in coming months, more gas will go to Alberta power plants rather than socked away in Alberta storage sites, helping to pull storage levels a little lower than they would otherwise be over this winter.”
Gas exports from western Canada will also remain strong, he suggested, thanks largely to additional takeaway capacity in Alberta, especially into TC Energy’s Gas Transmission Northwest pipeline, which serves the California market.
Finally, western Canadian gas production is expected to sag over the winter by about 200mn ft3/d.
Factoring in the structural changes and the supply and demand components suggests that withdrawals from storage this winter will be about 96bn ft3 higher than last winter, King said, while Alberta’s year-on-year storage surplus at the end of March 2021 is expected to shrink to just 50bn ft3 from 150bn ft3 at the end of March 2020, with more shrinkage expected over the course of the year.
“We think it is possible that the Alberta year-on-year surplus could shrink to near zero over the course of 2021, lending support for Canadian prices,” King said.