As natural gas storage inventories in Alberta plunged compared with the five-year average due to the frigid temperatures seen over the past month, which are expected to continue in March, the increased demand for injections required later in 2019 is expected to drive AECO hub's summer basis higher, according to S&P Global Platts Analytics.
Temperatures in Calgary started off relatively warm this winter, averaging 5 degrees Fahrenheit above normal from November 1 through January 31. However, frigid temperatures entered the picture in February, with Calgary seeing average temperatures 24 F below normal.
As a result, demand on the NOVA Gas Transmission (NGTL) system in Alberta averaged 7 Bcf/d in February, 27.3% above the 5.5 Bcf/d five-year February average and 11.1% higher than the 6.3 Bcf/d average in January, according to Platts Analytics data.
As demand was surging, production dropped 0.5 Bcf/d month on month in February, due to freeze-offs and NGTL maintenance.
The increase in demand and decrease in output has boosted AECO considerably, the cash premium for which climbed to $1.13/MMBtu above Henry Hub in trading last week. On Monday, it was down only 1 cent at $1.12/MMBtu premium. In January, cash AECO averaged a $1.71/MMBtu discount to Henry Hub. In February 2018, cash AECO averaged a 28 cent deficit to Henry Hub.
The tighter Alberta balance cut eastbound flows out of NGTL's East Gate by 0.5 Bcf/d compared with January to 4.2 Bcf/d in February. However, storage has also been called upon to meet this extra demand, and Alberta inventories are now trending well below five-year average levels.
Since the cold weather moved in early February, withdrawals on NGTL's storage system, which serves as a proxy for Alberta storage as a whole, accelerated to average 2 Bcf/d, an increase of 0.7 Bcf/d compared with January, according to Platts Analytics.
LARGE DRAWS TO CONTINUE
The higher demand looks set to linger into March and maybe even April. The two-week forecast calls for the cold temperatures to persist, while Canadian government forecasts are calling for the cold snap to continue through April.
If withdrawals continue at a clip roughly 20% above the five-year average through the end of March, Alberta storage levels would be down to 240 Bcf by month's end. If this happens, in order to reach end-of-summer 2018 levels of 380 Bcf, average summer injections must average 0.65 Bcf/d, according to Platts Analytics data. The average daily injection would have to rise 80.6% compared with last summer's 0.36 Bcf/d.
The recent heavy draws could add about 170 MMcf/d of injection demand this summer. However, if cold demand does persist through April, withdrawal season could be extended at the expense of injection season and lead to even higher daily injections this summer.
The added injection demand should support AECO basis this summer, although the hub could still see periods of extreme weakness as it did last summer. However, last summer Alberta injected more gas into the ground on many days, yet when pipeline capacity out of Alberta was reduced, prices still plummeted despite the availability of injection demand.
